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Glossary Of Investment Terms

Published on June 3, 2018

To help you understand some of the more commonly used terms used as part of a self-directed retirement plan, here are a few important terms we thought you should know.  Let us know if there are others you would like added to this list.

Self-directed IRA:  A self-directed IRA is a nontraditional retirement account that allows  individuals to invest in alternative investment options not allowed within typical retirement plans. A self-directed IRA can include:


Traditional IRA:  A traditional IRA (individual retirement account) is any IRA that is not a Roth IRA or a SIMPLE IRA.


ROTH IRA:  A Roth IRA is an account or annuity set up in the United States solely for the benefit of you or your beneficiaries. It is an individual retirement arrangement. However, when comparing a Roth IRA versus a traditional IRA, it’s important to understand that a Roth IRA differs from traditional IRAs in that contributions are not deductible. For information on contributions and the limitations please refer to Chapter 2 of the Publication 590, Individual Retirement Arrangements.

To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is set up. A deemed IRA can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA. To be eligible to contribute to a Roth IRA versus a traditional IRA, you must meet IRS designated income limits, which are adjusted periodically. For more information on current Roth income limitations please visit the IRS website at www.irs.gov.

More info on ROTH IRA [CLICK HERE]  

Simple IRA:  A SIMPLE IRA plan is a Savings Incentive Match PLan for Employees. Because this is a simplified plan, the administrative costs should be lower than for other, more complex plans. Under a SIMPLE IRA plan, employees and employers make contributions to traditional Individual Retirement Arrangements (IRAs) set up for employees (including self-employed individuals), subject to certain limits. It is ideally suited as a start-up retirement savings plan for small employers who do not currently sponsor a retirement plan.

More info on SIMPLE IRAs [CLICK HERE] 

SEP IRA:  A SEP is a simplified employee pension plan. A SEP plan provides employers with a simplified method to make contributions toward their employees’ retirement and, if self-employed, their own retirement. Contributions are made directly to an Individual Retirement Account or Annuity (IRA) set up for each employee (a SEP-IRA). See Publication 560 for detailed SEP information for employers and employees.

More info on SEP IRAs [CLICK HERE]  

Coverdell Education Savings Account (ESA):  A ESA is an account created as an incentive to help parents and students save for education expenses.

The total contributions for the beneficiary of a Coverdell Education Savings Account cannot be more than $2,000 in any year, no matter how many accounts have been established. A beneficiary of a Coverdell Education Savings Account is someone who is under age 18 or is a special needs beneficiary.


Health Savings Account:  A Health Savings Account is an alternative to traditional health insurance; it is a savings product that offers a different way for consumers to pay for their health care. HSAs enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis.

You must be covered by a High Deductible Health Plan (HDHP) to be able to take advantage of HSAs. An HDHP generally costs less than what traditional health care coverage costs, so the money that you save on insurance can therefore be put into the Health Savings Account.

You own and you control the money in your HSA. Decisions on how to spend the money are made by you without relying on a third party or a health insurer. You will also decide what types of investments to make with the money in the account in order to make it grow.