Learn the Language: Retirement 101
401(k), 403(b), IRA – it’s easy to tune out retirement terms when they sound like alphabet soup. But speaking the language can mean the difference between retiring with enough money in the bank and…not. That’s why we Skimm’d the terms and acronyms you need to know to say ‘ABC you later, office life.’
401(k): A common defined-contribution plan, where you can invest money Uncle Sam hasn’t gotten a piece of yet…and promise to give him a cut later. Learn more from that new hire welcome packet you never read.
403(b): Your version of a 401(k) if you work for a public school, charity, or nonprofit org. Invest for retirement now, pay taxes later.
Defined Contribution (DC) Plan: A retirement account you get from work, like a 401(k) or 403(b). Both you and your company can contribute. There are usually tax benefits, but also restrictions on when and how you can access your funds.
Employer Match: Extra money from your employer you didn’t have to work for. Some companies will match a certain amount of your retirement contributions just to be nice. And to get a tax break.
IRA: Stands for Individual Retirement Account. Just about anyone who earns money throughout the year can have one. For a traditional IRA, you invest already-taxed dollars, but might get a tax deduction come April depending on your income.
Pension: A fund where your employer sets aside money for Retired You. They manage the investments and guarantee a monthly payment – usually based on your salary, how long you worked there, and when you stopped working. You might have one if you work for the government or a union.
Rollover: When you move investments from one retirement account to another. Like from a 401(k) to an IRA. Usually because you’ve changed jobs and want to remember where all your money lives.
Roth IRA: The type of IRA where you can invest post-tax dollars, which grow and can be withdrawn in retirement totally tax-free. But there are income rules. The more you make, the less you can contribute.
SEP IRA: A retirement account for small biz owners and people who make their own rules at work. Boss retirement moves.
Social Security: Money the gov pays you just for being old. It’s a federal program that gives most retirees a steady check once they hit a certain age. At least for now.
Target-Date Fund: A set-it-and-forget-it retirement plan. You pick the year you want to go permanently OOO, and the fund automatically rebalances your investments, based on how far away that is. The closer you get, the more conservative your investments.
Tax-Deferred Plan: An investment account that lets you take a raincheck on paying taxes until you make a withdrawal. Usually a good move if you think you’ll be in a lower tax bracket (aka earning less) when you’ll use the funds.
Vesting: A timeline for how long until you fully own the things your employer promises you. Think: retirement match and stock options. No take-backs.