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Actual Deferral Percentage (ADP)

An annual test in a 401(k) plan that compares the average salary deferrals of highly compensated employees (HCEs) to that of non-highly compensated employees (NHCEs). Each employee’s deferral percentage is the percentage of compensation that has been deferred to the 401(k) plan. The deferral percentages of the HCEs and NHCEs are then averaged to determine the ADP of each group. To pass the test, the ADP of the HCE group may not exceed the ADP for the NHCE group by 1.25 percent or the lesser of 2 percentage points and two times the NHCE ADP.


Adjusted Gross Income

Adjusted Gross Income is defined as gross income minus adjustments to income.



The person who is identified in the plan document as having responsibility for running the plan. It could be the employer, a committee of employees, a company executive, or someone hired for that purpose.


Annual Additions

Annual additions are the total of all employer contributions in a year, employee contributions (not including rollovers), and forfeitures allocated to a participant’s account.


A series of payments under a contract that are made at regular intervals and over a period of more than one year.

Anti-Alienation Provision

This provision protects Qualified Plan assets from creditors provided there is at least one common law employee.


A resource with value that is expected to bring future benefit.


The legal transfer by one party, the assignor, to another party, the assignee. Most typical with contracts and in real estate.


B2B Program

The Entrust Group B2B Program is designed to help business owners and professionals learn how to unlock retirement wealth within an existing network of clients and prospects through education.


If you inherit a traditional IRA, you are called a beneficiary. A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive.

Beneficiary Designation Form

A form filled out upon opening an IRA or Plan which allows a beneficiary to be designated.


An insurance bond (or investment bond) is a single premium life assurance policy for the purposes of investment. Traditionally insurance bonds were with-profits policies and were often called with-profit(s) bonds. Since the introduction of unitised insurance funds they have often been marketed as unit-linked bonds or investment bonds.

Business Development Manager (BDM)

A designated Entrust professionals who has first-hand experience in self-directed IRAs, real estate IRAs and allowable alternative investments.

Buy Direction Letter

A letter provided to the Plan Administrator/Custodian that initiates the purchase of assets.


C Corporation

A C Corporation refers to any corporation that, under United States federal income tax law, is taxed separately from its owners. A C Corporation is distinguished from an S Corporation, which generally is not taxed separately. Most major companies (and many smaller companies) are treated as C Corporations for U.S. federal income tax purposes.

Certificate of Deposit (CD)

A certificate of deposit (CD) is a time deposit, a financial product commonly offered to consumers in the United States by banks, thrift institutions, and credit unions.

Checkbook Control

Checkbook Control is a term used when an account holder has complete signing authority for an LLC and its bank accounts.

Closing Costs

The expenses, not including the property itself, on a property incurred during a transaction.  These typically include loan fees, appraisals, title searches, taxes, and recording fees.


Any tangible personal property as specified by the IRS (including antiques, rugs, art, coins, jewerly, etc.) that is disallowed for investment purposes with an IRA or Plan.


An IRA contribution is the deposit of personal funds into your IRA. You can make contributions in the form of a check, wire, or ACH (direct deposit). The IRS limits the dollar amount that you can contribute to your IRA each year, and this amount varies based on the type of plan you have. Take a look at our contribution limits charts on our website to find out your limit based upon the type of plan you hold.


A designated individual or company who handles IRA or Plan assets and transactions. This entity must be approved by the IRS.



A written instrument, which has been signed and delivered, by which one individual, the grantor, conveys title to real property to another individual, the grantee; a conveyance of land, tenements, or hereditaments, from one individual to another.

Deed of Trust

A deed of trust or trust deed is a deed wherein legal title in real property is transferred to a trustee, which holds it as security for a loan (debt) between a borrower and lender. The borrower is referred to as the trustor, while the lender is referred to as the beneficiary of the deed of trust.

Defined Contribution Plan

A defined contribution plan provides an individual account for each participant in the plan. It provides benefits to a participant largely based on the amount contributed to that participant's account. Benefits are also affected by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan.


Refers to the decrease in value of assets.

Disqualified Person

Any person that is not permitted to have involvement with IRA or Plan transactions. Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant).


Distributions are withdrawals from an IRA.  Required minimum distributions begin April 1st of the year following reaching age 70.5. The required minimum distribution for each year is calculated by dividing the IRA account balance as of December 31 of the prior year by the applicable distribution period or life expectancy. These can be found in IRS Publication 590.

Due Diligence

Term used for a number of concepts involving either an investigation of a business or person prior to signing a contract, or an act with a certain standard of care. It can be a legal obligation, but the term will more commonly apply to voluntary investigations. A common example of due diligence in various industries is the process through which a potential acquirer evaluates a target company or its assets for acquisition.


Elective Deferrals

Amounts contributed to a plan by the employer at the employee’s election and which, except to the extent they are designated Roth contributions, are excludable from the employee’s gross income. Elective deferrals include deferrals under a 401(k), 403(b), SARSEP, and SIMPLE IRA plan.

Employee Retirement Income Security Act of 1974 (ERISA)

A federal law that sets standards of protection for individuals in most voluntarily established, private-sector retirement plans. ERISA requires plans to provide participants with plan information, including important facts about plan features and funding; sets minimum standards for participation, vesting, benefit accrual, and funding; provides fiduciary responsibilities for those who manage and control plan assets; requires plans to establish a claims and appeals process for participants to get benefits from their plans; gives participants the right to sue for benefits and breaches of fiduciary duty; and, if a defined benefit plan is terminated, guarantees payment of certain benefits through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation (PBGC).

Employee Stock Ownership Plan

A type of defined contribution plan that is invested primarily in employer stock.


An employer is generally any person for whom an individual performs or did perform any service, of whatever nature, as an employee. A sole proprietor is treated as his or her own employer for retirement plan purposes. However, a partner is not an employer for retirement plan purposes. Instead, the partnership is treated as the employer of each partner.


Equity is the value of an ownership interest in property, including shareholders' equity in a business.  Examples include “Home equity” -  the difference between the market value and unpaid mortgage balance on a home and “Private equity” -  stock in a privately held company

Excess Contribution

An excess contribution could be the result of your contribution, your spouse’s contribution, your employer’s contribution, or an improper rollover contribution. If your employer makes contributions on your behalf to a SEP IRA, see Publication 560.



The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation operating as an independent agency created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, up to $250,000 per depositor per bank as of January 2012. The FDIC also examines and supervises certain financial institutions for safety and soundness, performs certain consumer-protection functions, and manages banks in receiverships (failed banks). The FDIC receives no Congressional appropriations – it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities. Insured institutions are required to place signs at their place of business stating that “deposits are backed by the full faith and credit of the United States Government.” Since the start of FDIC insurance on January 1, 1934, no depositor has lost any insured funds as a result of a failure.


A fiduciary includes anyone who does any of the following:
  • Exercises any discretionary authority or discretionary control in managing your IRA or exercises any authority or control in managing or disposing of its assets                 
  • Provides investment advice to your IRA for a fee, or has any authority or responsibility to do so.
  • Has any discretionary authority or discretionary responsibility in administering your IRA.


The part of an employee’s account balance (employer contributions) that is lost when the employee terminates employment. It is the part that was not vested.


Gold IRA

A self-directed IRA that invests primarily in precious metals.


Hedge Fund

A hedge fund is an investment fund that can undertake a wider range of investment and trading activities than other funds, but which is only open for investment from particular types of investors specified by regulators. These investors are typically institutions, such as pension funds, university endowments and foundations, or high net worth individuals. As a class, hedge funds invest in a diverse range of assets, but they most commonly trade liquid securities on public markets. They also employ a wide variety of investment strategies, and make use of techniques such as short selling and leverage.

Highly Compensated Employee

An individual who:                                            

  • Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or
  • For the preceding year, received compensation from the business of more than $110,000 (if the preceding year is 2010 or 2011, or $115,000 if the preceding year is 2012), and, if the employer so chooses, was in the top 20% of employees when ranked by compensation.


In-Kind Contribution

An asset contributed to an Individual(k) account. The contribution must be at fair market value and stay within contribution limits.

Indirect Rule

An IRS guideline that, paraphrased, states that no transaction that cannot be done directly can be done indirectly.


The Individual(k) is similar to a 401(k) but for businesses that employ only the owners, their spouses, and partners. An Individual(k) plan has two components based on your employer and employee roles:

  • Employee - Salary deferral, based on earned income, up to the allowed limit. 
  • Employer - Profit-sharing contribution, maximum 25% of compensation, up to the allowed limit.

Inherited IRA

The Pension Protection Act of 2006 provides a new mechanism for an IRA to be passed on to a non-spouse beneficiary. Transferring an IRA account this way can allow better control over when to withdraw (and pay taxes on) the IRA funds. An IRA account can only be passed on once, and it is not directly transferred into the beneficiary’s account. Instead, a special IRA account with the heading “Deceased Name For the Benefit of Beneficiary Name “ is made to keep the transfer. Special rules apply to an inherited IRA.


The Internal Revenue Service (IRS) is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue. The IRS is responsible for collecting taxes and the interpretation and enforcement of the Internal Revenue Code.

IRS Code 4975

Prohibited transactions; first tier excise tax calculations. This ruling describes how the amount involved is calculated with respect to the section 4975 prohibited transaction excise tax if an employer does not timely pay elective deferrals to a qualified plan.

Section 4975(a) imposes a 15% excise tax (the first tier excise tax) on a prohibited transaction. In addition, § 4975(b) imposes a 100% excise tax (the second tier excise tax) on a prohibited transaction if that prohibited transaction is not corrected during the taxable period. The tax applies to any disqualified person who participates in the prohibited transaction (other than a fiduciary acting only as such). Under § 4975, the applicable excise tax is applied to the amount involved in the prohibited transaction.

Section 4975(c)(1)(D)[2] defines a prohibited transaction to include any direct or indirect transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan. In addition, § 4975(c)(1)(E) defines a prohibited transaction to include any act by a disqualified person who is a fiduciary whereby the fiduciary deals with the income or assets of a plan for his or her own interest or for his or her own account. Section 4975(e)(2) includes in its definition of a disqualified person an employer any of whose employees are covered by the plan.\nSection 4975(f )(4) defines the term “amount involved,” generally, as the greater of (1) the amount of money and the fair market value of the other property given or (2) the amount of money and the fair market value of the other property received in such transaction. For purposes of the first tier excise tax, the fair market value is determined as of the date on which the prohibited transaction occurs, whereas, for purposes of the second tier excise tax, the fair market value is the highest fair market value during the taxable period described in § 4975(f )(2). 

Section 4975(f )(2) defines the term “taxable period” as the period beginning with the date on which the prohibited transaction occurs and ending on the earliest of (1) the date of the mailing of a statutory notice of deficiency, (2) the date on which the first tier excise tax is assessed, or (3) the date on which correction of the prohibited transaction is completed.

IRS Publication 560

This publication discusses retirement plans you can set up and maintain for yourself and your employees. This publication covers the following types of retirement plans:                                                                                  

  • SEP (simplified employee pension) plans.    
  • SIMPLE (savings incentive match plan for employees) plans.              
  • Qualified plans (also called H.R. 10 plans or Keogh plans when covering self-employed individuals), including 401(k) plans.

IRS Publication 590

This publication discusses traditional, Roth, and SIMPLE IRAs. It explains the rules for:                                                            

  • Setting up an IRA
  • Contributing to an IRA
  • Transferring money or property to and from an IRA
  • Handling an inherited IRA
  • Receiving distributions (making withdrawals) from an IRA
  • Disaster area tax relief
  • Taking a credit for contributions to an IRA.

It also explains the penalties and additional taxes that apply when the rules are not followed. To assist you in complying with the tax rules for IRAs, this publication contains worksheets, samples forms, and tables, which can be found throughout the publication and in the appendicies at the back of the publication.

IRS Publication 598

This publication covers the rules for the tax on unrelated business income of exempt organizations. It explains:

  • Which organizations are subject to the tax (chapter 1)
  • What the requirements are for filing a tax return (chapter 2)
  • What an unrelated trade or business is (chapter 3)
  • How to figure unrelated business taxable income (chapter 4)

All section references in this publication are to the Internal Revenue Code.

IRS Publication 969

Various programs are designed to give individuals tax advantages to offset health care costs. This publication explains the following programs:

  • Health savings accounts (HSAs).
  • Medical savings accounts (Archer MSAs and Medicare Advantage MSAs).
  • Health flexible spending arrangements (FSAs).
  • Health reimbursement arrangements (HRAs).

IRS Publication 970

This publication explains tax benefits that may be available to you if you are saving for or paying education costs for yourself or, in many cases, another student who is a member of your immediate family. Most benefits apply only to higher education.

What is in this publication:

  • Chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions
  • Chapter 2, American Opportunity Credit
  • Chapter 3, Lifetime Learning Credit

Loan-to-Value Ratio

The amount of equity in a purchase. This is a large factor for obtaining debt financing.


Leveraged Transaction

Also known as Debt Financed Transactions. Uses borrowed funds for part of a purchase.

Limited Liability Company (LLC)

A Limited Liability Company (LLC) is a business structure allowed by state statute. LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation. Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single member” LLCs, those having only one owner. A few types of businesses generally cannot be LLCs, such as banks and insurance companies. Check your state’s requirements and the federal tax regulations for further information. There are special rules for foreign LLCs.

Limited Power of Attorney

A form required if a plan participant wishes to allow another party to direct purchases and sales of assets within a plan.

Non-recourse Loan

Non-recourse debt or a non-recourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the lender’s recovery is limited to the collateral. Thus, non-recourse debt is typically limited to 50% or 60% loan-to-value ratios, so that the property itself provides “overcollateralization” of the loan. While the borrower is in first loss position, the lender also assumes significant risk, so the lender must underwrite the loan with much more care than in a full recourse loan. This typically requires that the lender have significant domain expertise and financial modeling expertise.


Modified AGI (MAGI)

This is calculated by adding back certain items to your Adjusted Gross Income. Your Adjusted Gross Income (AGI) can be found on line 38 of your Form 1040; line 22 of your Form 1040A; or line 36 of your Form 1040NR. This is used for the purposes of contributing to a Roth IRA.


The charging of real (or personal) property by a debtor to a creditor as security for a debt (esp. one incurred by the purchase of the property), on the condition that it shall be returned on payment of the debt within a certain period


Plan Year

A 12-month period designated by a retirement plan for calculating vesting and eligibility, among other things. The plan year can be the calendar year or an alternative period, for example, July 1 to June 30.



An eligible employee who is covered by a retirement plan. See the discussions of the different types of plans for the definition of an employee eligible to participate in each type of plan.

Plan Document

A written instrument under which the plan is established and operated.

Power of Attorney (POA)

A power of attorney (POA) or letter of attorney is a written authorization to represent or act on another’s behalf in private affairs, business, or some other legal matter. The person authorizing the other to act is the principal, grantor, or donor (of the power), and the one authorized to act is the agent, donee, or attorney, or, in some common law jurisdictions, the attorney-in-fact. Formerly, a power referred to an instrument under seal while a letter was an instrument under hand, but today both are under hand (i.e. signed by the donor), and therefore there is no difference between the two.

Precious Metals

Allowable in an Entrust self-directed IRA: 
  • Gold: Bars and/or rounds must meet the required fineness of .995+ and be hallmarked by a NYMEX/COMEX, NYSE, LME, LBMA, ISO 9000, or national\ngovernment mint refiner/assayer. Allowable coins include, American Eagle coins (proof and non-proof ), American Gold Buffalo coins (non-proof ), Austrian Gold\nPhilharmonics coins, Canadian Maple Leafs and Australian Kangaroo/Nugget coins.             
  • Silver: Bars and/or rounds must meet the required fineness of .999+ and be hallmarked by a NYMEX/COMEX, NYSE, LME, LBMA, ISO 9000, or national\ngovernment mint refiner/assayer. Allowable coins include American Eagle Coins (proof and non-proof ), Austrian Philharmonic, Mexican Libtertads, Australian\nKookaburras and Canadian Silver Maple Leafs.                                
  •  Platinum/Palladium: Bars and/or rounds must have a 0.9995+ fineness and be hallmarked by a NYMEX/COMEX, NYSE, LME, LBMA, ISO 9000, or national\ngovernmentmint refiner/assayer. Allowable platinum coins include American Eagle Coins

Precious Metals IRA

A term used for a self-directed IRA that invests primarily in precious metals.

Private Placements

The sale of a new issue securities to a select few investors without registering with the SEC. A private placement is exempt from SEC registration, subject to certain restrictions, because it is not offered to the general public. In order to make a private placement, the issuer must file a private placement memorandum (PPM), which explains exactly why the issue complies with SEC Regulation D exempting certain companies from registration; this is done to protect both the issuer and the investors. According to Regulation D, a PPM must contain a complete description of the security and the terms of the sale. It must also include applicable information about the issuer’s financial situation and applicable risk factors. Private placement is also called direct placement.

Profit-Sharing Plan

A defined contribution plan under which the plan may provide, or the employer may determine, annually, how much will be contributed to the plan (out of profits or otherwise). The plan contains a formula for allocating to each participant a portion of each annual contribution. A profit-sharing plan may include a 401(k).

Prohibited Transaction

Generally, a prohibited transaction is any improper use of your traditional IRA account or annuity by you, your beneficiary, or any disqualified person. The following are examples of prohibited transactions with a traditional IRA:

  • Borrowing money from it
  • Selling property to it
  • Receiving unreasonable compensation for managing it
  • Using it as security for a loan
  • Buying property for personal use (present or future) with IRA funds.

Prohibited Transaction Exemption

A request sent to the Department of Labor (DOL) to allow for a prohibited transaction in an extreme circumstance.

Promissory Note

A signed document containing a written promise to pay a stated sum to a specified person or the bearer at a specified date or on demand.


Qualified Plan

There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. You can have more than one qualified plan, but your contributions to all the plans must not total more than the overall limits.


Real Estate IRA

A real estate IRA is a self-directed IRA that holds real estate. You can expand and diversify your investment opportunities beyond the stock market into a variety of assets, including mortgages, notes, trust deeds, and other real estate related investments.


The National Association of Realtors (NAR), whose members are known as Realtors, is the largest trade association and one of the most powerful lobbying groups in North America.


A rollover occurs when a participant directs the transfer of the money in his or her retirement account or IRA to a new plan or individual retirement account.

Roth IRA

A Roth IRA is an individual retirement plan that is funded with post-tax dollars, but all earnings, including interest, capital gains, and dividend income, grow tax free. You pay income taxes on the initial contribution in the year that is made, but you can withdraw the earnings tax-free as long as certain requirements are met. In addition, you can also withdraw your direct contributions at any time. You can begin withdrawing earnings at age 59½, but you are not required to take distributions at any age. You can have both a Roth IRA and an employer-sponsored plan, as long as you meet the compensation requirements.


S Corporation

S corporations are corporations that elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income.

Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)

A plan in which a small business with 100 or fewer employees can offer retirement benefits through employee salary reductions and employer non-elective or matching contributions (similar to those found in a 401(k) plan). It can be either a SIMPLE IRA or a SIMPLE 401(k). SIMPLE IRA plans impose few administrative burdens on employers because IRAs are owned by the employees, and the bank or financial institution receiving the funds does most of the paperwork. While each has some different features, including contribution limits and the availability of loans, required employer contributions are immediately 100 % vested in both.

Securities & Exchange Commission (SEC)

A government commission created by Congress to regulate the securities markets and protect investors. In addition to regulation and protection, it also monitors the corporate takeovers in the U.S. The SEC is composed of five commissioners appointed by the U.S. President and approved by the Senate. The statutes administered by the SEC are designed to promote full public disclosure and to protect the investing public against fraudulent and manipulative practices in the securities markets. Generally, most issues of securities offered in interstate commerce, through the mail or on the internet must be registered with the SEC.

Securities Act of 1933

Congress enacted the Securities Act of 1933 (the 1933 Act, the Securities Act, the Truth in Securities Act, the Federal Securities Act, or the ‘33 Act, 48 Stat. 74, enacted 1933-05-27, codified at 15 U.S.C. § 77a et seq.), in the aftermath of the stock market crash of 1929 and during the ensuing Great Depression. Legislated pursuant to the interstate commerce clause of the Constitution, it requires that any offer or sale of securities using the means and instrumentalities of interstate commerce be registered with the SEC pursuant to the 1933 Act, unless an exemption from registration exists under the law. “Means and instrumentalities of interstate commerce” is extremely broad, and it is virtually impossible to avoid the operation of this statute by attempting to offer or sell a security without using an “instrumentality” of interestate commerce. Any use of a telephone, for example, or the mails, would probably be enough to subject the transaction to the statute.

Self-Directed IRA

A Self-Directed Individual Retirement Arrangement is an IRA that requires the account owner to make investment decisions and investments on behalf of the retirement plan. IRS regulations require that either a qualified trustee, or custodian hold the IRA assets on behalf of the IRA owner.  Generally the trustee/custodian will maintain the assets and all transaction and other records pertaining to them, file required IRS reports, issue client statements, assist in helping clients understand the rules and regulations pertaining to certain prohibited transactions, and perform other administrative duties on behalf of the Self-directed IRA owner for the life of the IRA account. The custodian usually offers a selection of standard asset types that the account owner can select to invest in, such as stocks, bonds, and mutual funds. In addition, most custodians will also permit the account owner to make other types of investments. The range of permissible investments is broad, however, the IRS does place limits on the types of assets that may be invested in and on the types of transactions that may be carried out.

Self-Employed Individual

An individual in business for himself or herself, and whose business is not incorporated, is self-employed. Sole proprietors and partners are self-employed. Self-employment can include part-time work.

Simplified Employee Pension Plan (SEP)

A plan in which an employer contributes on a tax-favored basis to IRAs owned by its employees. If the employer meets certain conditions, it is not subject to the reporting and disclosure requirements of most retirement plans. Under a SEP, an IRA is set up by or for an employee to accept the employer’s contributions.

Sole Proprietorship

A business owner who generally has no common law employees. Also, an eligible party for an Individual(k) plan.

Spousal IRA

A type of individual retirement account that allows a working spouse to contribute to a nonworking spouse's retirement savings. A spousal IRA creates an exception to the provision that an individual must have earned income to contribute to an IRA. The working spouse's income, however, must equal or exceed the total IRA contributions made on behalf of both spouses.


The capital stock (or stock) of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors. Stock is different from the property and the assets of a business which may fluctuate in quantity and value.

Summary Plan Description

A document provided by the plan administrator that includes a plain language description of important features of the plan, for example, when employees begin to participate in the plan, how service and benefits are calculated, when benefits become vested, when payment is received and in what form, and how to file a claim for benefits. Participants must be informed of material changes either through a revised Summary Plan Description or in a separate document called a Summary of Material Modifications.


Tax Advantage

Tax advantage refers to the economic bonus which applies to certain accounts or investments that are, by statute, tax-reduced, tax-deferred, or tax-free. Governments establish the tax advantages to encourage private individuals to contribute money when it is considered to be in the public interest.

Tax Deferred

Deferred tax is an accounting concept (also known as future income taxes), meaning a future tax liability or asset, resulting from temporary differences or timing differences between the accounting value of assets and liabilities and their value for tax purposes.

Tax Lien Certificate

This certificate documents the purchase of a tax obligation from a taxing authority. The tax obligation was previously unpaid by the property owner of record and is then sold to a private investor so the taking authority can receive immediate funds.

Traditional IRA

An individual retirement account (IRA) in the United States. The IRA is held at a custodian institution such as a bank or brokerage, and may be invested in anything that the custodian allows (for instance, a bank may allow certificates of deposit, and a brokerage may allow stocks and mutual funds).  

Unlike the Roth IRA, the only criterion for being eligible to contribute to a Traditional IRA is sufficient income to make the contribution. However, the best provision of a Traditional IRA — the tax-deductibility of contributions — has strict eligibility requirements based on income, filing status, and availability of other retirement plans (mandated by the Internal Revenue Service). Transactions in the account, including interest, dividends, and capital gains, are not subject to tax while still in the account, but upon withdrawal from the account, withdrawals are subject to federal income tax (see below for details).\nThis is in contrast to a Roth IRA, in which contributions are never tax-deductible, but qualified withdrawals are tax free. The traditional IRA also has more restrictions on withdrawals than a Roth IRA. With both types of IRA, transactions inside the account (including capital gains, dividends, and interest) incur no tax liability.


A transfer occurs when your account assets are transferred directly from one IRA custodian to another. Transfer requests are initiated by your new custodian. There are no tax consequences to a transfer, and no limitations on the number of transfers you can make.


A legal term which, in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another. The trustee may be a person or company, whether or not they are a prospective beneficiary.


Unrelated Business Taxable Income (UBTI)

Generally, the gross income derived from any unrelated trade or business regularly conducted by the exempt organization, less the deductions directly connected with carrying on the trade or business.

Unrelated Debt Financed Income Tax (UDFI)

A tax imposed by the IRS, which applies to any profit made on a debt financed transaction in excess of $1,000.