Chapter 6- Terms to Know

Earned income

salary, wages, or commissions; but not income from investments, unemployment benefits, and similar

Gross income

a person's income before taxes or other deductions

FIFO

principle under which it is assumed that the funds paid into the policy first will be paid out first

LIFO

principle applied to asset management in life insurance products, under which it is assumed that the funds paid into the policy last will be paid out first

Nonprofit organization

an organization that uses its surplus to fulfill its purpose instead of distributing the surplus to its owners or members

Policy endowment

maturity date

Policy proceeds

in life insurance, the death benefit

Pretax contribution

contribution made before federal and/or state taxes are deducted from earnings

Rollover

withdrawal of the money from one qualified plan and placing it into another plan

Surrender

early termination of a policy by the policyowner

Tax deductible

a reduction of taxable income, resulting in lower tax liability

Taxable

subject to taxation, payable to state and federal government

Tax deferred

taxes on investments or gains (such as interest or dividends) are paid at a future date instead of in the period in which they are incurred tax

Vesting

the right of a participant in a retirement plan to retain part or all of the benefits