The pretax rate that a taxable bond must yield to generate the same income as a municipal bond, which is exempt from paying taxes on income on some government level. This figure, which will vary depending on the investor's individual tax bracket, helps compare the real earnings potential of a taxable investment with a tax-free investment.
The postponement of taxation on an investment until a later time. Tax deferral is widely viewed as a benefit to investing within a traditional IRA or 401(k) or to purchasing some life insurance products. The principle of tax deferral aids in the pursuit of long-term investment growth. Tax-deferred assets in a traditional IRA or 401(k) may be subject to a 10% IRS penalty if withdrawn prior to age 59½.
A type of generally lower-risk savings vehicle, such as a certificate of deposit, with maturities typically ranging from seven days to several years. Time deposits often pay a higher interest rate than traditional savings accounts, but penalties may apply for withdrawing money before maturity.
A measure of a fund's performance that encompasses all elements of return: dividends, capital gains distributions, and changes in net asset value. Total return is the change in the value of an investment over a given period, assuming any reinvestment of dividends or capital gains distributions, expressed as a percentage of the initial investment.
A retirement account to which you can contribute up to a specified amount each year (the maximum amount is determined by Congress). Individuals aged 50 and older may also be eligible to make additional annual catch-up contributions (up to a specified amount). IRAs give your money the potential to grow tax-deferred and, depending on your personal circumstances, contributions may be tax deductible (withdrawals prior to age 59½ may be assessed a 10% IRS penalty). Withdrawals from traditional IRAs are taxed at then-current rates.
Short-term debt securities issued by the U.S. Treasury, "T-bills" sell at a discount to their par (face) value and mature in less than a year. The interest an investor earns is the difference between the buying price and the amount paid at maturity.
An agreement in which a grantor transfers assets to a trustee for the purpose of benefiting one or more beneficiaries.
The administrator of a trust.