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Useful Tax Glossary and Definitions

As a courtesy to our clients, we have compiled a comprehensive list of common tax terms and definitions for quick reference.

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Glossary of Terms

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Term Definition
401(k) Plan

A qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis. Employers offering a 401(k) plan may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.

403(b) Plan

A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations and certain ministers. Individual accounts in a 403(b) plan can be any of the following types:

  • An annuity contract, which is provided through an insurance company.
  • A custodial account, which is invested in mutual funds.
  • A retirement income account set up for church employees.

Generally, retirement income accounts can invest in either annuities or mutual funds.

408(k) Plan

A plan set up by an employer to help employees fund their retirement. The 408(k) plan is a simplified version of the popular 401(k) plan but is intended for smaller companies (those with fewer than 25 employees). It is also available to self-employed individuals. Under the plan, employees can contribute pretax dollars to the account and thus reduce their net incomes for the year. This results in a tax savings for the contributor.

457 Plan

A non-qualified, deferred compensation plan established by state and local governments and tax-exempt governments and tax-exempt employers. Eligible employees are allowed to make salary deferral contributions to the 457 plan. Earnings grow on a tax-deferred basis and contributions are not taxed until the assets are distributed from the plan.

501(c)

A subsection under the United States Internal Revenue Code. The subsection relates to non-profit organizations and tax law and identifies which nonprofit organizations are exempt from paying federal income tax

529 Plan

A plan that allows for the prepayment of qualified higher education expenses at eligible educational institutions.

Also known as a "qualified tuition program", or more fully as a "section 529 plan".

90-Day Letter

An IRS notice sent after an audit stating that there was a discrepancy or error within an individuals taxes and they will be assessed unless petitioned.