Plain-English definitions

An employer-sponsored retirement savings plan that allows employees to save and invest a portion of their paycheck before taxes are taken out. Named after the section of the Internal Revenue Code that governs it.

A retirement plan similar to a 401(k) but offered by public schools, certain non-profits, and some religious organizations.

The process of dividing investments among different asset categories, such as stocks, bonds, and cash, to balance risk and reward according to your goals, risk tolerance, and time horizon.

A person or entity designated to receive benefits from a retirement account, life insurance policy, trust, or will upon the account holder's death.

A fixed-income investment representing a loan made by an investor to a borrower (typically corporate or governmental). Bonds are used by companies and governments to finance projects and operations.

The profit from the sale of an asset (such as stocks or real estate) that has increased in value. May be taxed as short-term (held less than one year) or long-term (held more than one year).

The process where investment earnings generate their own earnings over time. Often called "compound interest," it's the concept of earning returns on your returns.

A risk management strategy that involves spreading investments across various financial instruments, industries, and other categories to reduce exposure to any single asset or risk.

An investment strategy where you invest a fixed amount of money at regular intervals, regardless of market conditions. This can reduce the impact of volatility.

A federal tax on the transfer of a deceased person's assets to their heirs. Illinois does not have a separate state estate tax.

A person or organization legally required to act in another person's best interest. Investment advisers registered with the SEC or state regulators are held to a fiduciary standard.

Financial Industry Regulatory Authority - a self-regulatory organization that oversees broker-dealers and registered representatives in the United States.

A tax-advantaged savings account available to people enrolled in high-deductible health plans. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free.

A type of mutual fund or ETF designed to track the performance of a specific market index, such as the S&P 500. Typically has lower fees than actively managed funds.

A tax-advantaged retirement savings account that individuals can open independently (not through an employer). Comes in Traditional and Roth varieties with different tax treatments.

The ease with which an asset can be converted into cash without significantly affecting its price. Cash is the most liquid asset.

Federal health insurance program for people age 65 and older, and some younger people with disabilities. Consists of Parts A (hospital), B (medical), C (Medicare Advantage), and D (prescription drugs).

A bond issued by a state or local government to finance public projects. Interest is often exempt from federal taxes and may be exempt from state taxes for residents.

The total value of your assets (what you own) minus your liabilities (what you owe). A key measure of overall financial health.

A retirement plan where an employer commits to making regular payments to an employee after retirement, typically based on salary and years of service. Also called a "defined benefit plan."

A collection of financial investments like stocks, bonds, mutual funds, and other assets held by an investor.

The minimum amount you must withdraw from certain retirement accounts (like Traditional IRAs and 401(k)s) annually, starting at age 73 (as of 2024). Failure to take RMDs results in significant tax penalties.

Your ability and willingness to withstand losses in your investments. Influenced by factors like age, income, financial goals, and personal comfort with market volatility.

A retirement account funded with after-tax dollars. Contributions are not tax-deductible, but qualified withdrawals in retirement are tax-free.

Securities and Exchange Commission - the federal agency responsible for enforcing securities laws and regulating the securities industry, stock and options exchanges.

Setting Every Community Up for Retirement Enhancement Act - federal legislation (2019 and 2.0 in 2022) that made significant changes to retirement account rules, including RMD age increases.

A fixed dollar amount that reduces the income you're taxed on. For 2024, it's $14,600 for single filers and $29,200 for married filing jointly.

A retirement account where contributions may be tax-deductible in the year made, investments grow tax-deferred, and withdrawals in retirement are taxed as ordinary income.

The process by which an employee earns the right to employer contributions in a retirement plan. You may be "fully vested" immediately or over several years depending on the plan.

The degree of variation in the price of an investment over time. Higher volatility means larger price swings and greater risk.