Financial Glossary

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Tax credit

A dollar-for-dollar reduction in the amount of income tax owed. Compare to a tax deduction.

Tax deduction

An expense subtracted from overall taxable income. Unlike a tax credit, a tax deduction is taken before the total tax liability is calculated and reduces tax liability in proportion to the taxpayer’s tax bracket.

Tax-deferred

Delaying paying income taxes on investments until the investments are withdrawn. For example, earnings on investments in IRAs are taxed when they are withdrawn from the account, not when they are earned.

Tax-sheltered annuity (TSA)

A tax-deferred retirement plan offered to employees of certain educational, charitable or religious organizations. Both employees and employers can make contributions to the plan. Also known as 403(b) plans.

Term insurance

A type of life insurance where a death benefit is paid only when the insured dies during a specified time period. Term life insurance policies do not accrue cash value or provide borrowing power.

Testamentary trust

A trust written into the terms of a will that does not go into effect until the maker’s death.

Treasury bills

Short-term debt securities issued and backed by the U.S. government. Often called T-bills, these securities have maturities of one year or less.

Treasury bonds

Long-term securities issued and backed by the U.S. government. They have maturities of more than 10 years. They pay interest on a semiannual basis.

Treasury notes

Intermediate-term securities issued and backed by the U.S. government. They have maturities between one and 10 years.