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Glossary of Terms

As you start the investment process, following are some terms you may find useful.

A tuition plan in which a payment is made now or over time at today's lower tuition rates, with the program then paying future higher tuition costs. Generally only available at state-owned colleges or universities.

An account that allows money to be saved today and to grow tax-free if used for higher education. Each 529 Savings Plan must be sponsored by an individual state, and each state may provide some state tax benefits for state residents.

Income (including wages, interest, capital gains, income from retirement accounts, alimony paid to you) adjusted downward by specific deductions (including contributions to deductible retirement accounts, alimony paid by you); but not including standard and itemized deductions. AGI is the number at the bottom of page 1 of the 1040 Tax Form.

Any item of value that an individual or a corporation owns.

A certificate of debt issued by a government or corporation guaranteeing payment of the original investment plus interest by a specified future date. In other words, a loan extended by the bond owner to the bond issuer (government or company).

This is the amount of money that the owner receives when selling an asset that is greater than the amount of money that the owner originally paid for the asset. (Sale Price - Purchase Price).

Tax assessed on a capital gain. If the asset was held for longer than one year the tax is 15%, if held less than one year, then the tax is the same as the owner’s income tax rate.

Money in the form of bills, coins or other currency. Frequently includes investments that can be liquidated and "turned into cash" within three months. This would include checking accounts, Certificates of Deposits, Money Market Accounts, and Treasury Bills.

The amount school costs. It includes tuition, student fees, room and board, as well as estimated expenses for books and supplies, personal expenses, and transportation to and from campus

An account that allows money to be saved today and to grow tax-free if used for education. An ESA has greater contribution and income restrictions than a 529 Savings Plan but money may be used for private primary and secondary schools.

Generally, there is a 15% tax on dividends.

Income that is paid to the owner of a bond.

Baskets of securities, usually representing some underlying index, that are traded, like individual stocks, on an exchange. Unlike an Index Fund, it is easier to manage taxes with ETFs, but you also have to pay brokerage fees whenever purchasing ETFs.

Amount a family is likely to pay toward college tuition. Computed by both the government and the individual school. If this amount is less than the Cost of Attendance then the difference is made up through financial aid

The fee you pay to own a mutual fund.

Any type of assistance used to pay college costs that are based on financial need.

A type of financial aid, synonymous with scholarships or gift aid. Grants do not need to be repaid and no work is required to earn them. Grant aid generally comes from federal and state governments and from individual colleges.

Mutual fund holding a portfolio of securities that closely matches an established index (like the S&P 500).

Saving or spending that results in an increase in assets

Individual Retirement Account. Allows one to save for retirement while enjoying either tax-free or tax-deferred growth. See Traditional IRA or Roth IRA.

An IRS regulation that requires unearned income (i.e., interest, dividends, capital gains, etc.) received by a child under the age of 14 to be taxed at the parent’s (usually higher) tax rate.

Sales charge on a mutual fund, usually paid at time of purchase. Even "no load" funds can charge fees, including 12b-1 fees used for marketing.

A sum of money lent on which interest is paid and repayment is expected at a date in the future. Most financial aid, approximately 55%, is in the form of loans and is subsidized by the government, which means that the interest rate is low and generally no interest accrues until repayment begins after graduation.

An investment company in which one buys shares, with all capital used to invest in diversified securities of other companies.

Investment in index funds rather than actively managed mutual funds.

Official name of 529 Prepaid and 529 Savings Plans

An account that allows one to save after-tax dollars, which then grow tax-free if used for retirement.

Financial capital or funds that a corporation raises through the sale of shares entitling the stockholder to dividends and to other rights of ownership, such as voting rights.

An investment in which all tax is paid at some to-be-determined date in the future. The underlying assumption is that it will be financially beneficial for the owner to pay this tax in the future rather than the present. Under certain scenarios, tax-deferred investment may become tax-free investments if money is spent on certain items, like education.

No tax need ever be paid.

Stocks, Bonds, Cash, Mutual Funds

An account that allows one to save pre-tax dollars -- and to deduct the savings from yearly income, thereby enjoying an immediate tax savings -- which then grow tax-free until used for retirement. When dollars are withdrawn from account, tax must be paid at what is usually the lower income tax rate one enjoys during retirement.

Uniform Gifts to Minors Act Accounts/Uniform Transfers to Minors Act Accounts. An investment vehicle that allows one to save money in a child's name while still maintaining control on how the money is spent. Control is exercised by the Custodian. There may be some tax advantages.

A bond issued by the US Government. Taxes may not need to be paid, if money is used for education.

Investment vehicle or savings vehicle: the type of account that may be used to save money.

Work-Study is a federal program, which provides students with part-time employment to help meet their financial needs and to provide work experience.

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