See it in: 401(k) Withdrawal Tax Calculator
Money words, explained simply
Finance is full of jargon. Here’s what 60 common words actually mean — in the kind of plain English you could explain to a five-year-old — with links to calculators where you can see them in action.
- 401(k)
- A retirement savings account you get through your job. Money goes in before tax, grows, and is taxed when you take it out.
- 529 plan
- A special savings account for school. The money grows without yearly taxes, and comes out tax-free when used for education.See it in: 529 College Savings Calculator
- APR / interest rate
- The basic yearly rate before compounding is counted. APY is usually a little higher than the APR.See it in: CD Calculator
- APY (annual percentage yield)
- How much your money really grows in one year, with compounding included. 4% APY on $100 means about $104 after a year.Banks in the US must show APY on savings products, which makes it the best number for comparing them.See it in: CD Calculator
- Average cost per share
- If you bought the same stock at different prices, this is the price you paid “on average” for each share.See it in: Stock Average Calculator
- Averaging down
- Buying more of a stock after its price falls, so your average price per share goes down.See it in: Stock Average Calculator
- Beneficiary
- The person an account is meant for — for a 529 plan, the student.See it in: 529 College Savings Calculator
- Bond
- An IOU. You lend money to a government or company; they pay you interest along the way and give your money back at the end.See it in: Bond Price & Yield Calculator
- Breakeven
- The price where you have made exactly zero — not a win, not a loss.See it in: Stock Profit Calculator · Options Profit Calculator
- Call option
- The right to BUY a stock at a set price. It makes money if the stock goes up.See it in: Options Profit Calculator
- Capital gain
- The profit when you sell something for more than you paid. Buy for $100, sell for $150: a $50 capital gain.See it in: Capital Gains Tax Calculator · Stock Profit Calculator
- Capital loss
- When you sell something for less than you paid. Losses can lower the tax you owe on gains.See it in: Capital Gains Tax Calculator
- CD (certificate of deposit)
- A deal with a bank: you promise to leave your money there for a set time, and the bank promises you a fixed interest rate.See it in: CD Calculator
- Coast FIRE
- Having saved enough that, even if you never save another dollar, your money will grow into your full retirement amount by itself.See it in: Coast FIRE Calculator
- Commission / trading fee
- What a broker charges you to buy or sell. Many US brokers now charge $0 for stock trades.See it in: Stock Profit Calculator
- Composite rate
- An I bond’s total interest rate: its fixed part plus its inflation part, combined.See it in: Savings Bond Calculator
- Compound interest
- Interest that earns its own interest. Like a snowball rolling downhill: the bigger it gets, the faster it grows.Each period, interest is added to your balance, and the next period’s interest is calculated on that bigger balance.
- Cost basis
- What you paid for something you invested in, including fees. It’s the starting line for working out your profit.
- Coupon
- The interest a bond pays you, usually twice a year. A $1,000 bond with a 5% coupon pays $50 a year.See it in: Bond Price & Yield Calculator
- Current yield
- A bond’s yearly interest divided by today’s price — a quick, simpler version of the return.See it in: Bond Price & Yield Calculator
- Dividend
- A slice of a company’s profit that it hands out to the people who own its shares — like a thank-you payment.See it in: Dividend Calculator
- Dividend yield
- How much a stock pays in dividends each year compared with its price. A $100 share that pays $3 a year has a 3% yield.See it in: Dividend Calculator
- DRIP (dividend reinvestment)
- Using your dividends to automatically buy more shares, so next time you get even bigger dividends.See it in: Dividend Calculator
- Duration
- A way to measure how much a bond’s price will wobble when interest rates change. Bigger duration = bigger wobble.See it in: Bond Price & Yield Calculator
- Early withdrawal penalty
- A fee for taking your money out before you promised to.
- EE bond
- A savings bond with a fixed interest rate that the government promises will at least double in 20 years.See it in: Savings Bond Calculator
- Effective tax rate
- The share of the money that actually went to tax, all layers counted together.
- Expiration
- The date an option ends. After it, the option is worth exactly what it would make if used right then — or nothing.See it in: Options Profit Calculator
- Face value (par)
- The amount a bond pays back at the end — usually $1,000 per bond.See it in: Bond Price & Yield Calculator
- FDIC insurance
- A US government promise that if an insured bank fails, you get your deposits back — up to $250,000 per person, per bank, per account type.See it in: CD Calculator
- Filing status
- Which group you file taxes as — single, married filing jointly, married filing separately or head of household. It changes your tax brackets.
- FIRE
- “Financial Independence, Retire Early” — saving and investing enough that your investments pay for your life, so work becomes optional.See it in: Coast FIRE Calculator
- Fixed rate
- An interest rate that never changes for as long as you own the investment.See it in: Savings Bond Calculator · CD Calculator
- I bond
- A savings bond whose interest goes up when prices go up, so your money keeps up with inflation.See it in: Savings Bond Calculator
- Inflation
- Prices slowly going up over time, so the same dollar buys a little less each year. A candy bar that cost $1 might cost $1.03 next year.
- Interest
- Money someone pays you for letting them use your money — or money you pay to borrow someone else’s.Banks pay you interest on savings because they lend your money to other people.See it in: CD Calculator
- IRA (individual retirement account)
- A retirement savings account you open yourself, with special tax rules.See it in: Roth IRA Calculator
- MAGI (modified adjusted gross income)
- Your income after a few specific adjustments. The IRS uses it to decide things like whether you can put money in a Roth IRA.See it in: Roth IRA Calculator · Capital Gains Tax Calculator
- Maturity
- The day an investment “finishes” and you get your money back — like the end date on a CD or a bond.
- Net investment income tax (NIIT)
- An extra 3.8% tax on investment profits for people with higher incomes (over $200,000 single or $250,000 married filing jointly).See it in: Capital Gains Tax Calculator
- Option
- A contract that gives you the right — but not the duty — to buy or sell a stock at a set price before a set date.See it in: Options Profit Calculator
- Principal
- The money you put in at the start, before any interest is added.See it in: CD Calculator · Savings Bond Calculator
- Put option
- The right to SELL a stock at a set price. It makes money if the stock goes down.See it in: Options Profit Calculator
- Qualified education expenses
- The school costs a 529 plan is allowed to pay for tax-free, like tuition, books, and room and board.See it in: 529 College Savings Calculator
- Real return
- How much your money grows after you take away inflation. If your money grows 7% but prices grow 3%, you are really about 4% richer.Calculated as (1 + return) ÷ (1 + inflation) − 1.See it in: Coast FIRE Calculator
- Return / ROI
- How much you made compared with how much you put in, shown as a percentage. Put in $100, get back $125: a 25% return.See it in: Stock Profit Calculator
- RMD (required minimum distribution)
- The minimum the IRS makes you take out of most pre-tax retirement accounts each year once you reach a certain age (73 or 75).See it in: 401(k) Withdrawal Tax Calculator
- Roth IRA
- A retirement account where you pay tax on the money now, then it grows and comes out tax-free when you retire.See it in: Roth IRA Calculator
- Rule of 72
- A shortcut for how long money takes to double: divide 72 by the yearly growth rate. At 8%, money doubles in about 9 years.See it in: Rule of 72 Calculator
- Short-term vs. long-term
- Held for one year or less = short-term (taxed like your paycheck). Held for more than a year = long-term (usually taxed less).See it in: Capital Gains Tax Calculator · Stock Profit Calculator
- Standard deduction
- A chunk of income the government lets you earn tax-free each year before income tax starts.
- Stock / share
- A tiny piece of a company. Own one share of a company with a million shares, and you own one-millionth of it.
- Strike price
- The set price in an option contract — the price you can buy or sell at.See it in: Options Profit Calculator
- Tax bracket (marginal rate)
- Income is taxed in layers. Each layer has its own rate, and your bracket is the rate on your top layer — not on all your money.
- US savings bond
- A very safe way to lend money to the US government. You can’t sell it to anyone else — you just cash it in with the government.See it in: Savings Bond Calculator
- Withdrawal rate / 4% rule
- How much of your savings you take out each year in retirement. The “4% rule” says taking 4% a year has historically lasted about 30 years.See it in: Coast FIRE Calculator
- Yield on cost
- Your yearly dividends compared with what you originally paid. It grows when companies raise their dividends.See it in: Dividend Calculator
- Yield to maturity (YTM)
- Your total yearly return if you buy a bond today at its current price and keep it until it pays you back.See it in: Bond Price & Yield Calculator