US Financial Glossary

A tax form reporting income from sources other than an employer, including freelance work (1099-NEC), interest (1099-INT), and dividends (1099-DIV).

An employer-sponsored retirement savings plan. Contributions are pre-tax (Traditional) or after-tax (Roth). 2026 limit: $24,500 ($32,500 if age 50+, $35,750 at ages 60-63).

Automated Clearing House, the electronic network used for direct deposits, bill payments, and bank-to-bank transfers in the US.

Alternative Minimum Tax, a parallel tax system that prevents high earners from using too many deductions to avoid paying tax. You pay whichever is higher.

Annual Percentage Rate, the yearly cost of borrowing including interest and fees. Used to compare loan and credit card offers.

A strategy for high earners who exceed Roth IRA income limits. You contribute to a non-deductible Traditional IRA, then immediately convert it to a Roth IRA.

A taxable investment account for buying stocks, ETFs, bonds, and mutual funds. No contribution limits, but gains are subject to capital gains tax.

Tax on profit from selling an asset. Long-term gains (held 1+ year) are taxed at 0%, 15%, or 20%. Short-term gains are taxed as ordinary income.

Certificate of Deposit, a savings product with a fixed interest rate and fixed term (e.g. 6 months, 1 year). Withdrawing early incurs a penalty.

A mortgage that meets Fannie Mae/Freddie Mac guidelines, including loan size limits. Conforming loans typically offer lower rates than jumbo loans.

The percentage of your available credit you're currently using. Keeping it below 30% (ideally below 10%) helps maintain a good credit score.

Your total monthly debt payments divided by gross monthly income. Lenders typically require a DTI below 43-50% to qualify for a mortgage.

The amount you pay out-of-pocket for healthcare before your insurance starts paying. Higher deductible plans typically have lower premiums.

Investing a fixed amount regularly regardless of market price. Reduces the impact of volatility by buying more shares when prices are low and fewer when high.

The actual average percentage of your total income paid in taxes, usually lower than your marginal (top bracket) rate.

Free money your employer adds to your 401(k) based on your contributions, typically 50–100% of contributions up to a set percentage of salary.

An account held by your lender to collect and pay property taxes and homeowners insurance on your behalf, typically added to your monthly mortgage payment.

Exchange-Traded Fund, a basket of securities that trades on an exchange like a stock. Often tracks an index (e.g. S&P 500) with low fees.

The annual fee charged by a fund, expressed as a percentage of your investment. Lower is better, even small differences compound significantly over decades.

Free Application for Federal Student Aid, the form used to determine eligibility for federal grants, work-study, and loans. File annually.

Federal Deposit Insurance Corporation protection covering up to $250,000 per depositor, per bank, per account category. Protects you if a bank fails.

A government-backed mortgage insured by the Federal Housing Administration. Allows lower down payments (3.5%) and credit scores (580+), but requires mortgage insurance.

Federal Insurance Contributions Act, the payroll tax that funds Social Security (6.2%) and Medicare (1.45%), matched by your employer.

The most widely used credit score (300–850), calculated by Fair Isaac Corporation. Scores above 740 typically qualify for the best interest rates.

Flexible Spending Account, an employer benefit letting you set aside pre-tax dollars for medical expenses. Unlike HSAs, most funds must be used by year-end ("use it or lose it").

A period after graduating, leaving school, or dropping below half-time enrollment during which you're not required to make loan payments. Typically 6 months for federal loans.

A credit check triggered when you apply for new credit (mortgage, auto loan, credit card). Can temporarily lower your score by a few points.

High-Deductible Health Plan, a health insurance plan with higher deductibles and lower premiums. Required to open and contribute to an HSA.

Health Savings Account, a triple-tax-advantaged account for medical expenses. Contributions are tax-deductible, grow tax-free, and withdrawals for qualified medical costs are tax-free.

High-Yield Savings Account, a savings account offering significantly higher interest rates than traditional bank accounts, typically offered by online banks.

Income-Driven Repayment, federal student loan plans that cap monthly payments at a percentage of discretionary income (e.g. 5-10%). Remaining balance forgiven after 20-25 years.

A fund that passively tracks a market index like the S&P 500. Known for low fees and broad diversification; often outperforms actively managed funds over time.

Specific expenses you can deduct instead of the standard deduction, including mortgage interest, state taxes (SALT), and charitable donations.

A mortgage exceeding conforming loan limits ($766,550 in most areas). Requires stronger credit, larger down payments, and typically carries higher rates.

Modified Adjusted Gross Income, your AGI with certain deductions added back. Used to determine eligibility for Roth IRA contributions, student loan interest deductions, and more.

The most you'll pay for covered healthcare in a plan year. After reaching this amount, insurance covers 100% of covered services.

Private Mortgage Insurance, required when you put less than 20% down on a conventional loan. Typically costs 0.2–2% of the loan annually.

Upfront fees paid to reduce your mortgage interest rate. One point = 1% of the loan amount and typically lowers the rate by 0.25%.

Public Service Loan Forgiveness, a federal programme that forgives remaining federal student loan balances after 10 years of qualifying payments while working for government or non-profit employers.

Required Minimum Distribution, the minimum amount the IRS requires you to withdraw annually from tax-deferred accounts (401k, Traditional IRA) starting at age 73.

An individual retirement account funded with after-tax dollars. Qualified withdrawals in retirement are completely tax-free. 2026 limit: $7,500 ($8,600 if 50+). Income phase-out: $153,000-$168,000 (single), $242,000-$252,000 (married filing jointly).

A federal benefit programme providing retirement, disability, and survivor income. You earn credits through payroll taxes; full benefits are available at age 67 for those born after 1960.

A flat amount that reduces your taxable income, available to all filers without needing to itemise. For 2026: $16,100 (single), $32,200 (married filing jointly).

A federal student loan where the government pays the interest while you're in school at least half-time, during grace periods, and deferment.

The rate at which your income is taxed. The US uses a progressive system, only the income within each bracket is taxed at that rate, not all your income.

An individual retirement account where contributions may be tax-deductible. Withdrawals in retirement are taxed as ordinary income. RMDs start at age 73. If you are covered by a workplace plan, the deduction phases out at $81,000-$91,000 MAGI (single) and $129,000-$149,000 (married filing jointly) for 2026.

The schedule by which employer contributions to your 401(k) become fully yours. If you leave before fully vested, you may forfeit some employer contributions.

A form your employer sends each January reporting your annual wages and taxes withheld, used to file your federal and state tax return.