Archives: Glossary Terms

Reverse Mortgage

Also known as a Home Equity Conversion Mortgage, it’s a tool used by people aged-62 and older to access the equity in their home. The homeowner is granted a loan based on the home’s value, his/her age, and prevailing interest rates, which will never need to be paid off. Instead, the home will be used to repay the loan (with interest) when the homeowner passes away.

Modified Adjusted Gross Income (MAGI)

A specific calculation of an individual’s income that determines eligibility for tax-deductible IRA contributions. First, Adjusted Gross Income is calculated as one’s gross income (salaries, wages, interest income, dividends, capital gains, etc.) less tax-deductible expenditures (student loan interest, health insurance, etc.). Then, some sources of income which had been excluded from Gross Income (N/A for the average taxpayer) are added back in to arrive at the MAGI.

IRA Contribution Limits

The maximum amount you can contribute to an IRA (combined across traditional and Roth) each year. As of 2018, the limit is $5,500 for people under 50 and $6,500 for people 50 and over.

Social Security Credits

Credits earned while you work to qualify you for Social Security benefits and to determine how much your benefits will be. You can earn up to 4 credits per year based on your wages. To receive retirement benefits, you need to accumulate 40 credits.

Full Retirement Age

The age at which you are eligible to start claiming your full Social Security benefit. Your full retirement age depends on when you were born but is between 66 and 67 for people retiring today. Claiming Social Security before your full retirement age will reduce your benefit, and the opposite is true if you delay claiming.

457(b)

A defined contribution plan, similar to a 401(k) or 403(b), offered by state and local governments. 457(b)s allow government employees to save money for retirement on a pre-tax basis. In some plans the employer also makes contributions to the accounts, commonly referred to as “matching”.

403(b)

A defined contribution plan, similar to a 401(k), offered by public schools and certain tax-exempt organizations. With 403(b)s, employees of these institutions can save money for retirement on a pre-tax basis. In some plans the employer also makes contributions to the accounts, commonly referred to as “matching”.

Qualified Retirement Account

Retirement savings accounts, like 401(k)s and IRAs that qualify for tax-deferred status under the Internal Revenue Code. Contributions are typically made on a pre-tax basis, and growth accumulates without being taxed until withdrawn. Withdrawals cannot be made prior to age 59½ but are required starting at age 70½.

I-Bonds

Similar to TIPS, I-Bonds are inflation-linked securities issued by the government. They offer low-risk inflation protection because the bond’s coupon payments increase with inflation, as measured by the Consumer Price Index. I-Bonds don’t generate income, instead accruing interest until maturity.

Treasury Inflation Protected Securities (TIPS)

Inflation-linked bonds issued by the government in 5-, 10-, and 30-year maturities. TIPS offer low-risk inflation protection because the bond’s value will increase with inflation, as measured by the Consumer Price Index.