Financial Glossary

Plain-English definitions for the terms you'll encounter in wealth management, retirement, tax, estate, and equity compensation.

Showing 38 of 38 terms

401(k): An employer-sponsored retirement plan funded with pre-tax (Traditional) or after-tax (Roth) contributions. 2026 employee deferral limit is $23,500 ($31,000 age 50+).
403(b): A retirement plan for employees of public schools, universities, and certain non-profits. Mechanically similar to a 401(k); often paired with TIAA or 457(b) accounts in education.
457(b): A non-qualified deferred compensation plan for state and local government employees. Critically, 457(b) withdrawals are not subject to the 10% early-withdrawal penalty after separation from service.
Accredited Investor: An SEC classification permitting access to certain private offerings. Individuals qualify with $1M+ net worth (excluding primary residence) or $200K+ income ($300K married). Below the Qualified Purchaser threshold.
Asset Allocation: The mix of stocks, bonds, real estate, and alternatives in a portfolio. The single largest determinant of long-term returns and risk.
Asset Location: Strategic placement of investments across taxable, tax-deferred, and tax-free accounts to maximize after-tax returns. Distinct from asset allocation.
AUM: Assets Under Management. The total dollar value of client assets a firm manages. Typically the basis for fee-based RIA compensation.
Backdoor Roth IRA: A two-step strategy where high earners contribute to a non-deductible Traditional IRA and then convert to a Roth IRA, bypassing direct Roth contribution income limits.
Basis Points (bps): 1/100th of a percent. 100 bps = 1%. Common unit for advisory fees (e.g., 100 bps = 1% AUM fee).
Capital Gains: Profit from selling an investment. Short-term (held under 1 year) is taxed as ordinary income; long-term is taxed at 0%, 15%, or 20% federally.
Concentration Risk: The risk that a single position dominates a portfolio. Common with employer stock (RSUs, ISOs, ESPP). Generally, no single position should exceed 10-15% of net worth.
Custodian: The financial institution that holds client assets. Independent RIAs use third-party custodians (Fidelity, Interactive Brokers, Charles Schwab) — the advisor cannot withdraw assets.
Dividend: A distribution of a company's earnings to shareholders. Qualified dividends are taxed at long-term capital-gains rates.
Donor-Advised Fund (DAF): A charitable account that provides an immediate tax deduction while allowing grants to be made to charities over time. Useful for bunching deductions.
Estate Tax: Federal tax on the transfer of property at death. The 2026 federal exemption is $13.99M per individual ($27.98M married). Some states impose their own estate tax with lower thresholds (NY exemption ~$7M).
Expense Ratio: The annual operating cost of a mutual fund or ETF, expressed as a percent of assets. Index funds often charge 3-10 bps; active funds 50-150 bps.
Fee-Based: An advisor compensated solely by client fees — no commissions, product sales, or revenue-sharing. The most transparent advisor compensation model.
Fiduciary: Someone legally obligated to act in a client's best interest. Registered Investment Advisors are fiduciaries; brokers operating under Reg BI are held to a lower 'best interest' standard.
Form ADV: The disclosure document every Registered Investment Advisor files with the SEC. Part 2A describes services, fees, and conflicts; Part 2B profiles each advisor.
Index Fund: A mutual fund or ETF that tracks a market index (e.g., S&P 500). Generally low-cost and tax-efficient.
Inherited IRA: An IRA received as a beneficiary. Most non-spouse beneficiaries must fully distribute the account within 10 years under the SECURE Act.
ISO (Incentive Stock Option): A type of employer stock option with potential favorable tax treatment if held long enough, but subject to AMT considerations on exercise.
Mega Backdoor Roth: A strategy using after-tax 401(k) contributions and in-plan Roth conversions to potentially contribute up to $46,500 extra to Roth accounts annually (2026).
NSO (Non-Qualified Stock Option): An employer stock option taxed as ordinary income on the spread at exercise. More common than ISOs.
NYSLRS: New York State and Local Retirement System. Administers pension benefits for NYS state employees across multiple membership tiers (Tier 1 through Tier 6).
Pension: A defined-benefit plan that pays a guaranteed monthly income in retirement based on years of service and final salary. Becoming rare in the private sector but common for public employees.
Qualified Purchaser (QP): An SEC classification: individuals with $5M+ in investable assets, or entities with $25M+. QP status grants access to certain private investments not available to accredited investors.
Required Minimum Distribution (RMD): The minimum amount that must be withdrawn annually from tax-deferred retirement accounts starting at age 73 (rising to 75 in 2033 under SECURE 2.0).
Roth IRA: An individual retirement account funded with after-tax dollars. Qualified withdrawals — including all growth — are tax-free in retirement.
RSU (Restricted Stock Unit): Employer stock granted on a vesting schedule. Taxed as ordinary income at vesting based on the share price that day.
SECURE Act: 2019 legislation reshaping retirement rules. Eliminated the 'stretch IRA' for most non-spouse beneficiaries, replacing it with a 10-year distribution requirement.
Standard Deduction: The default deduction taxpayers can claim without itemizing. 2026: $15,750 single, $31,500 married filing jointly.
Step-Up in Basis: When inherited assets receive a new cost basis equal to fair market value at the date of death, eliminating embedded capital gains.
Tax-Loss Harvesting: Selling losing positions to realize capital losses, which offset gains and up to $3,000 of ordinary income annually. Surplus losses carry forward indefinitely.
TIAA: A leading retirement provider for educators and non-profit professionals. Often the default vendor in 403(b) and ORP plans at universities.
Trust: A legal arrangement where a trustee holds assets for the benefit of beneficiaries. Used for estate planning, asset protection, and tax efficiency.
Wirehouse: A large, full-service brokerage firm with national reach. The four major U.S. wirehouses are Merrill Lynch, Morgan Stanley, UBS, and Wells Fargo.
Yield: The income return on an investment, expressed as a percentage of cost or market value. Includes dividends and interest.