Chapter 12, Lesson 3: Retirement Accounts (401(k), 403(b), IRA, Roth vs Traditional)

Vocabulary flashcards covering key retirement accounts (401(k), 403(b), IRA) and related concepts (tax treatment, penalties, compounding, diversification, and employer matching).

401(k)

A company-sponsored retirement plan; contributions are often pre-tax and may be matched by the employer.

403(b)

A retirement plan for employees of nonprofit organizations, similar to a 401(k).

Employer match

Employer contributions that match a portion of an employee’s retirement savings, essentially free money.

Traditional 401(k)

Contributions are pre-tax, grow tax-deferred, and withdrawals are taxed in retirement.

Roth 401(k)

Contributions are after-tax, and withdrawals in retirement are tax-free.

IRA

Individual Retirement Arrangement; a retirement account not tied to an employer.

Traditional IRA

Contributions may be tax-deductible, growth is tax-deferred, and withdrawals are taxed in retirement.

Roth IRA

Contributions are after-tax, and both growth and withdrawals in retirement are tax-free.

Roth vs Traditional tax treatment

Roth accounts use after-tax money for tax-free withdrawals; Traditional accounts use pre-tax money, and withdrawals are taxed. Both offer tax-advantaged growth.

59½

The age when retirement account withdrawals can typically begin without an early-withdrawal penalty.

Early withdrawal penalty

A 10% IRS penalty for taking retirement funds out before age 59½, plus regular taxes.

Compound growth

Earnings on investments that generate their own earnings, leading to faster growth over time.

Diversification

Spreading investments across different assets to reduce risk.

Growth-stock mutual funds

Mutual funds investing in companies expected to grow quickly, used to boost retirement account growth.

Tax-advantaged

Accounts or investments that offer tax benefits, like tax-deferred growth or tax-free withdrawals.