Glossary
Plain-English glossary
Every term you’ll meet on this site — defined the way a person would say it. Use the filter to jump straight to a word.
Automatic payroll deduction
A fixed amount moved from each paycheck into your IRA before you can spend it. The single most reliable savings mechanism ever measured.
Beneficiary
The person (or people) who receive your account if you die. Naming one takes two minutes and overrides your will for this account.
Catch-up contribution
An extra amount the IRS allows savers age 50 and older to contribute each year, above the standard limit.
Compound growth
Earnings on your earnings. Small amounts, left alone for years, do most of the work — which is why starting early beats starting big.
Contribution limit
The annual IRS cap on what you can put into IRAs. It changes over time — see Contribution limits in Resources for current figures.
Custodian
The regulated institution that holds your IRA’s assets and keeps its records. MyFreeIRA accounts are custodied at Investor Services.
Distribution
Money taken out of a retirement account. Timing and taxes depend on account type and your age.
Expense ratio
The annual fee an investment fund charges, expressed as a percentage of what you hold. Lower is better; it compounds against you.
Fiduciary
A party required by law to act in your best interest with respect to the duties it has assumed — a higher bar than merely ‘suitable.’
IRA (Individual Retirement Arrangement)
A tax-advantaged account you own personally — it is not tied to any employer, which is why it survives a job change untouched.
Know your customer (KYC)
The identity verification a custodian must complete before opening your account — name, date of birth, address, identification number. It protects your account from being opened or taken over by someone else.
Know your transactions (KYT)
Ongoing monitoring of account transactions for suspicious patterns — one of the ways custodians protect savers from fraud.
Money market fund
A fund holding short-term, high-quality instruments, used as a cash-like option. Stable, modest yield, not FDIC-insured.
Payroll provider
The company that processes your employer’s paychecks. MyFreeIRA works through payroll so contributions happen automatically.
Portability
Your IRA belongs to you, not your job. Change employers and nothing about the account changes — no rollover, no paperwork, no orphaned balance.
Qualified distribution
A withdrawal that meets IRS conditions (for a Roth IRA: the account is 5+ years old and you are 59½ or older, among other triggers) and is therefore tax-free.
Required minimum distribution (RMD)
The amount the IRS requires you to withdraw annually from certain retirement accounts starting at the statutory age. Roth IRAs have no lifetime RMDs for the owner.
Rollover
Moving retirement money between accounts — for example, from an old 401(k) into an IRA — without triggering taxes when done correctly.
Roth IRA
An IRA funded with after-tax dollars: no deduction today, but qualified withdrawals in retirement are tax-free.
Saver’s credit
A federal tax credit for eligible lower- and moderate-income savers who contribute to a retirement account — money back for saving.
Traditional IRA
An IRA that may be funded with pre-tax dollars: a possible deduction today, with withdrawals taxed as income in retirement.
Vesting
In employer plans, the schedule on which employer contributions become yours. An IRA has no vesting — every dollar is yours from day one.
Withholding
Tax held back from a distribution and sent to the IRS on your behalf. You can usually adjust it.
Educational definitions, not advice. Tax specifics belong to a tax professional.