1035 Exchange

A tax-sheltered exchange of cash value from one policy to another. This allows an individual to avoid capital gains or losses in the first policy as long as the second plan is of greater or equal cost.


12(b)1 Fees

A fee that is levied by a mutual fund – usually on a yearly basis and is usually about 1 percent or less of a fund’s assets.  The monies collected are usually used to pay broker-dealers for servicing accounts.  A mutual fund that charges a 12(b)1 fee must disclose this in writing.


401(k) Plan

A defined contribution plan offered by a corporation to its employees, which allows employees to set aside tax-deferred income for retirement purposes, and in some cases employers will match their contribution dollar-for-dollar.


403(b) Tax Sheltered Annuity

With this type of annuity an eligible employer is allowed to purchase an annuity for an employee, and the employee may exclude the amount of the premiums from his/her gross income. The annuity earnings accumulate tax deferred.


When the employee retires and begins receiving these accumulated funds, they will be taxed as ordinary income. The income of the employee during retirement will probably be much less than prior to retirement. The employee is in effect deferring a portion of his/her income until retirement in order to have it taxed at a lower level.


529 College Savings Plan

A type of Section 529 state-sponsored investment plan that allows families to save for future college costs and withdraw the investment earnings tax-free as long as they are used for qualified higher education expenses including tuition, fees, room and board, and supplies.