Investing & Retirement Vocabulary

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What is a Traditional IRA?

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A Traditional IRA is a retirement account where contributions are made with pre-tax dollars, meaning you don't pay taxes on the money until you withdraw it during retirement.

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What is a Roth IRA?

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A Roth IRA is a retirement account where contributions are made with after-tax dollars, meaning you pay taxes on the money before you invest it, but withdrawals during retirement are tax-free.

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What does the 'P' in the simple interest formula I=Prt represent?

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The 'P' represents the principal, which is the amount of money borrowed or deposited.

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What is a Traditional 401k?

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A Traditional 401k is a retirement savings plan sponsored by an employer that allows employees to save for retirement with pre-tax contributions, often with employer matching.

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What is a Pension?

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A Pension is a defined benefit plan offered by some employers that provides a fixed payout to employees at retirement based on their salary and years of service.

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What is Compound Interest?

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Compound Interest is the interest calculated on the initial principal and also on the accumulated interest from previous periods, allowing money to grow exponentially over time.

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What is Simple Interest?

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Simple Interest is calculated only on the principal amount, or the original amount of money borrowed or invested.

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What is the difference between Simple Interest and Compound Interest?

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Simple Interest is calculated only on the principal, while Compound Interest is calculated on the principal plus any accumulated interest.

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What is the purpose of a retirement savings plan?

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The purpose of a retirement savings plan is to help individuals save money for retirement, allowing their savings to grow over time, often with tax advantages.

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What is tax deferral in the context of retirement accounts?

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Tax deferral means that taxes on contributions and earnings are postponed until the money is withdrawn, typically during retirement.