Retirement Glossary
IRMAA
IRMAA stands for Income-Related Monthly Adjustment Amount. It's an additional charge that some higher-income retirees pay on top of their standard Medicare Part B and Part D premiums.
Your IRMAA is based on the income reported on your tax return from two years earlier. For example, your 2026 Medicare premiums are generally based on your 2024 income.
Not everyone pays IRMAA. If your income exceeds certain thresholds, Medicare may increase your monthly premium. Careful retirement income planning can sometimes help reduce or avoid these additional costs.
RMD
An RMD, or Required Minimum Distribution, is the minimum amount that the IRS requires you to withdraw each year from certain tax-deferred retirement accounts, such as Traditional IRAs and many employer-sponsored retirement plans.
The age at which RMDs begin depends on current tax law and your date of birth. Failing to take your required distribution can result in significant IRS penalties.
Because RMDs may affect your taxable income and Medicare premiums, it's important to include them in your overall retirement strategy.
Roth Conversion
A Roth Conversion is the process of moving money from a Traditional IRA or another eligible retirement account into a Roth IRA.
Although you'll generally owe income tax on the amount converted in the year of the conversion, future qualified withdrawals from the Roth IRA are typically tax-free.
For some retirees, Roth conversions can be a useful strategy to manage future taxes, reduce Required Minimum Distributions, or leave tax-efficient assets to beneficiaries. Whether it's appropriate depends on your personal financial situation.
Probate
Probate is the legal process of settling a person's estate after they pass away. This process may involve validating a will, paying debts, and distributing assets to heirs.
Not every asset goes through probate. Property with designated beneficiaries, jointly owned assets, and certain assets held in trusts may transfer directly to beneficiaries without going through the probate process.
Thoughtful estate planning can help simplify the transfer of assets and ensure your wishes are carried out.
401(k)
A 401(k) is an employer-sponsored retirement savings plan that allows employees to save and invest for retirement. Contributions are often made directly from your paycheck, and many employers offer matching contributions.
Depending on your plan, contributions may be made on a pre-tax basis or through a Roth 401(k), which uses after-tax dollars.
A 401(k) is often one of the largest retirement assets people accumulate during their working years.
Annuity
An annuity is a financial product offered by an insurance company that can help provide a stream of income, often during retirement. Depending on the type of annuity you choose, it may allow your money to grow over time, provide guaranteed income, or offer other features designed to support long-term financial goals.
There are several types of annuities, including fixed, fixed indexed, and variable annuities. Each works differently, and the features, risks, fees, and potential returns can vary significantly. The right choice depends on your individual financial goals, risk tolerance, and retirement plan.
While annuities can play an important role in retirement planning for some individuals, they are not a one-size-fits-all solution. It's important to understand how an annuity works and whether it aligns with your overall financial strategy before making a decision.
Pension
A pension is an employer-sponsored retirement plan that provides eligible employees with a regular stream of income after they retire. Unlike a 401(k), where employees typically contribute and manage their own investments, a traditional pension is generally funded and managed by the employer.
The amount of your pension benefit is often based on factors such as your years of service, salary history, and the specific terms of your employer's retirement plan. Some pensions offer a monthly payment for life, while others may provide options such as a lump-sum payout or survivor benefits for a spouse.
Although traditional pensions are less common today than they once were, many government employees, teachers, military personnel, and workers at long-established companies may still be eligible for pension benefits. Understanding your payout options is an important part of retirement planning.
Fiduciary
A fiduciary is a person or organization that is legally and ethically obligated to act in another person's best interest when providing financial advice or managing assets.
A fiduciary is expected to place the client's interests ahead of their own, avoid conflicts of interest whenever possible, and provide recommendations that are appropriate for the client's financial goals and circumstances.
Understanding whether your financial professional acts as a fiduciary can be an important part of choosing someone to help guide your retirement planning.
Trust
A trust is a legal arrangement that allows a person (the grantor) to transfer assets to a trustee, who manages those assets for the benefit of designated beneficiaries. Trusts are commonly used as part of an estate plan to help manage and distribute assets according to your wishes.
Depending on the type of trust, it may help avoid probate, provide privacy, protect assets, or allow greater control over how and when beneficiaries receive inheritances.
Trusts are not one-size-fits-all solutions. Whether a trust is appropriate depends on your financial goals, family situation, and overall estate planning strategy.
Qualified Charitable Distribution (QCD)
A Qualified Charitable Distribution (QCD) allows individuals age 70½ or older to donate money directly from an IRA to a qualified charity. For those who are eligible, a QCD can be a tax-efficient way to support charitable organizations.
Beginning at age 73, a QCD may also satisfy all or part of your Required Minimum Distribution (RMD) without increasing your taxable income, provided IRS requirements are met.
QCDs can be a valuable strategy for retirees who are charitably inclined and looking to manage taxable income. It's important to understand the rules before making a distribution.
Allocation
Allocation refers to the process of deciding how money or other financial resources are distributed among different purposes or investments. In financial planning, allocation helps ensure your assets are organized in a way that supports your goals, time horizon, and overall strategy.
Allocation can apply to many areas of a financial plan, including how much of your portfolio is invested in stocks, bonds, cash, or other asset types. It may also refer to how retirement income is distributed among various accounts or spending needs.
A thoughtful allocation strategy should be reviewed periodically as your financial situation, goals, and retirement plans evolve.