I wanted to (finally) give you a money dictionary that doesn’t require a dictionary to understand the word’s definition. That doesn’t exist . . . so I made my own. You know how you explain a term to a friend who doesn’t “get” it? That’s the way it’s written here. Let this glossary be your go-to guide for definitions with a practical perspective whenever you need a little cheat-sheet. Some stuff changes over the years, but these basics never go out of style.
401(k): A popular retirement plan offered by an employer. The cool- est thing about it is that you can put money in tax-deferred. That means you are able to save a bigger chunk of your paycheck up front (since you’re using money you’ve made before taxes are taken out), let that grow, and only pay taxes when you take it out, in other words, when you are ready to retire. It’s meant to help you when you’re old, so the IRS tries to hook you up with that tax incentive because you’re not supposed to use it until then. If you do there’s often a 10% penalty (on top of any taxes you now have to pay). (See also: Roth 401(k), IRA, Roth IRA)