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Retirement

401(k) 101:  A Glossary Guide

5/7/21 11:23 AM

401(k) building blocks

It’s never too early to start thinking about putting money away for retirement. Today, many people choose to invest in their future by taking advantage of a 401(k) plan - either through their employer's suite of benefit offerings or by going out and purchasing their own.

Whether you have an employer-sponsored retirement savings plan, or a single plan, there may be some unfamiliar terms you’ve come across. The glossary below will help you familiarize yourself with the meaning behind some of the language you’ll see when wading into the world of 401(k) plans. 

 

403(b)

A 403(b) is a type of retirement savings plan for employees that work for a charity or non-profit and is exclusive to tax-exempt organizations. 

 

Auto-Enrollment

Auto-enrollment allows employers to set up eligible employees with a retirement savings plan that will start after a predetermined number of days, or hours, they have worked for the company. 

 

Beneficiary

A beneficiary is a person that you as a retirement plan participant chose to receive benefits of the plan should you die. 

 

Blackout Period

A blackout period is an amount of time that a participant cannot access or make changes to their 401(k) plan. 

 

Capital Gains 

Capital gains are profits made from an asset that can be taxed at short or long-term rates.  

 

Defined Contribution Plan

A defined contribution plan is an employer-sponsored retirement plan. The income the plan provides varies according to several factors including how much money is contributed to the plan, how the contributions are invested, and the amount of the return on the investment. 

 

Direct Rollover 

A direct rollover moves retirement savings assets (money) from one retirement plan directly into another. 

 

Distribution

Distribution is when you withdraw money from your retirement savings account. There are rules around when you can withdraw your funds and penalties for withdrawing early. 

 

Diversification

Diversification is an investment strategy that spreads your invested money (or principal) around different sectors and industries. The purpose of this is to protect the overall bulk of your money by essentially not putting all of your eggs in one basket.

 

Employee Deferral

An employee deferral is the amount of money selected by the participant to be contributed to their 401(k) plan. 

 

Employer Match

An employer match is the amount an employer will contribute to an employee’s 401(k) account. 

 

ERISA

The Employee Retirement Income Security Act (ERISA) is a law passed in 1974 that gives certain rights to participants and sets standards for 401(k) plan administrators.

 

Expense Ratio

An expense ratio is an annual amount you pay for maintaining a mutual fund that is a percentage of the net asset value in the fund.  

 

Hardship Withdrawal

A hardship withdrawal is a distribution made from a participant’s retirement savings plan during a time of extreme financial need.   

 

In-Service Withdrawal

An in-service withdrawal is a withdrawal from a retirement savings plan from the participant but comes with various stipulations based on the kind of plan.   

 

IRA

An Individual Retirement Account (IRA) is a personal retirement savings plan with tax incentives and limitations.  

 

Managed Account 

A managed account is a portfolio of stocks or bonds owned and managed by the participant investor. Check out our Bespoke managed account solution! 

 

Mutual Fund 

A mutual fund is a type of financial vehicle made up of collectively pooled money in the form of stocks or bonds. 

 

Net Asset Value

Net asset value (NAV) is the current market worth of a mutual fund share.   

 

Participant

A participant is an employee who is eligible for a retirement savings plan.

 

Plan Administrator

A 401(k) plan administrator is a person or organization your employer chooses to manage your company’s retirement savings plan. The administrator will work with your plan provider to ensure that the plan meets government regulations with the Department of Labor. Plan administrators also make sure employees have the information they need on their plans to complete activities like enrollment, applying for loans and requesting a distribution. 

 

Plan Provider

A 401(k) plan provider is a kind of financial services company that sells your employer (or you) your retirement savings plan. Slavic401k is a plan provider. 

 

Plan Sponsor

A 401(k) plan sponsor is the employer who offers the plan to employees. The plan sponsor will choose which type of retirement savings plan they will offer their employees and then partner with the plan provider and plan administrator.  

 

Principal

The principal is the original amount of money invested or borrowed. 

 

Qualified Automatic Contribution Arrangement (QDIA)

A Qualified Automatic Contribution Arrangement, or commonly referred to as QDIA, is a default investment option for plan contributions that will be automatically applied to a participant’s retirement plan unless other investment selections are made. 

 

Recordkeeper

A recordkeeper is the service provider for a 401(k) plan who keeps track of the different money sources in the plan. They also provide online support and participant statements. 

 

Rollover

Rollover is when you move your money (assets) from one qualified retirement investment account to another. Investment plans can be tax-deferred or tax-free.

 

Roth 401(k) 

A Roth 401(k) is a feature that allows participants to make contributions to a retirement savings plan on an after-tax basis. 

 

Summary Plan Description (SPD)

A summary plan description (SPD) is the document that will describe the features of your employer-sponsored plan including participant rights as defined by The Employee Retirement Income Security Act (ERISA).

 

Vesting

Vesting is a period of time you must work for your employer before you can gain access to your employer-contributed retirement plan income. This period can vary and range over several years. 

 

Having a 401(k) plan can ensure that you’ll have income after you retire. If you’re just starting in your career, now is a good time to familiarize yourself with the terms you will be seeing as you set up and maintain your plan. 

 

At Slavic, we treat each plan participant as an individual investor. Unsure where to start? Our 401(k) calculator can help you determine if you're on track to meet retirement goals. Take control of your future retirement today!  

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