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If you withdraw assets from a fixed-term investment, such as a certificate of deposit (CD), before it matures, it is considered an early withdrawal.
If you withdraw from an individual retirement account (IRA) or tax-deferred retirement savings plan before you turn 59 1/2, it is also considered early.
If you withdraw early, you usually have to pay a penalty imposed by the issuer (in the case of a CD) or the government (if it's an IRA or other tax-deferred or tax-free savings plan).
However, you may be able to use the money in your account without penalty under certain circumstances. For example, if you withdraw IRA assets to pay for higher education, to buy a first home, or for other qualified reasons, the penalty is waived. But taxes will still be due on the tax-deferred portion of the withdrawal.
- Browse Related Terms: 529 college savings plan, 529 Plan (Prepaid Tuition Plan), 529 prepaid tuition plan, Baccalaureate bond, Certificate of Accrual on Treasury Securities (CATS), CollegeSureî CD, Coverdell Education Savings Account, Early withdrawal, Education savings account (ESA), Hardship withdrawal, Hope scholarship credit, Investment horizon, Lifetime learning credit, Prepaid college savings plan, Prepaid college tuition plan, Tax-exempt
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A charge that is given to holders of fixed –term investments if they withdraw their money before maturity.
- Browse Related Terms: Account holder, ATM surcharge, Canceled Check (Share Draft), Check Deposit Return, Early Withdrawal Penalty, fee, Fee Charged for Use of Other ATM, Fee Charged for Use of Your Own ATM, Minimum Balance Required, Money Order Fee, Monthly or Annual Fee, Overdraft Fee, Overdraft Protection, Per Check Fee (If Minimum Balance is Not Maintained), Per Check Fee (If Minimum Balance Maintained), Service Fee Per Month
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A rate of compensation purely for working one’s full normal time, not amounts paid on a cash basis. When compensation includes maintenance, fees, and other things of value, the State Budget and Control Board shall establish the monetary value of such compensation.
- Browse Related Terms: Annuity, Cost-of-Living Adjustment, Earnable Compensation, FICA, Fixed Income, Guaranteed investment contract (GIC), Interest, Pre-Tax, Prospectus, South Carolina Retirement Systems, volatility
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Earned income is contrasted with investment income. It includes wages, salaries, honoraria, commission, professional fees, and other forms of compensation for services.
Earned income is pay you receive for work you perform, including salaries, wages, tips, and professional fees.
Your earned income is included in your gross income, along with unearned income from interest, dividends, and capital gains. If you have earned income, you're eligible to contribute to an individual retirement account (IRA).
- Browse Related Terms: 401(k), 401(k) Plan, 403(b), 457, After-tax contribution, After-tax income, Automatic enrollment, CAP, Catch-up contribution, earned income, Employee stock ownership plan (ESOP), Excess contribution, Health Savings Account (HSA), High deductible health plan (HDHP), Highly compensated employees, Independent 401(k), Individual retirement account (IRA), Individual retirement annuity, individual retirement arrangement (IRA), Keogh plan, Matching contribution, Money purchase plan, Pretax contribution, Pretax income, Profit sharing, Recharacterization, Required beginning date (RBD), Roth 401(k), Roth IRA, Salary reduction plan, SIMPLE, Simplified employee pension plan (SEP), Tax-Deferred
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Includes wages, salaries, tips, includible in gross income, and net earnings from self-employment earnings.
- Browse Related Terms: bonus, compulsory payroll tax, earned income, employee, flat tax, Form W-4, Employee's Withholding Allowance Certificate, formal tax legislation process, income taxes, independent contractor, salary, self-employment loss, self-employment profit, tip income, wages
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The earned income tax credit (EIC) reduces the income tax of that certain low-income taxpayers would otherwise owe. It's a refundable credit, so if the tax that's due is less than the amount of the credit, the difference is paid to the taxpayer as a refund.
To qualify for the EIC, a taxpayer must work, earn less than the government's ceiling for his or her filing status and family situation, meet a set of specific conditions, and file the required IRS schedules and forms.
- Browse Related Terms: adjusted gross income (AGI), Alternative minimum tax (AMT), Deduction, Earned Income Credit (EIC), Exemption, Head of household, Modified adjusted gross income (MAGI), Real property tax, Tax credit
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A tax credit for certain people who work, meet certain requirements, and have earned income under a specified limit.
- Browse Related Terms: ability to pay, benefits received, Earned Income Credit (EIC), financial records, Gross Income, horizontal equity, underground economy, vertical equity
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Paid employment as an employee during which regular contributions are paid to the Retirement Systems. Members enrolled after December 31, 2000, must have five years of earned service to be eligible to receive a service retirement annuity or a disability retirement annuity, to qualify a survivor for a monthly annuity after an in-service death, or to receive a supplemental minimum benefit under SCRS.
- Browse Related Terms: Beneficiary or Beneficiary Payee, Claims Procedure Act, Contingent beneficiary, Deferred annuity, Disability Determination Provider, Disability Retirement, Earned Service, Payment Plan, Refund, Retirement Annuity, Teacher and Employee Retention Incentive (TERI) Program, Workers’ Compensation
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Money given to a seller by a buyer to demonstrate the buyer’s good faith. If the deal falls through, the deposit is usually forfeited.
- Browse Related Terms: Affinity fraud, Earnest Money, ex-dividend, Good faith deposit, Net change, Record date, Settlement date, Tick, Uptick
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In the case of an individual, earnings include salary and other compensation for work you do, as well as interest, dividends, and increases in the value of your investments.
From a corporate perspective, earnings are profits, or net income, after the company has paid income taxes and bond interest.
- Browse Related Terms: Basis, Basis price, Capital Gain, Capital gains tax (CGT), Capital loss, Community property, Convertible hedge, Cost basis, Earnings, Fund family, Investment Income, Long-term capital gain (or loss), Paper profit (or loss), Phantom gains, Profit, Realized gain, Return, Return on investment, Sell short, Step-up in basis, Unrealized gain, Unrealized loss, Wash sale
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Professional stock analysts use mathematical models that weigh companies' financial data to predict their future earnings per share on a quarterly, annual, and long-term basis.
Investment research companies, such as Thomson Financial and Zacks, publish averages of analysts' estimates for stock market professionals follow closely. These averages are called consensus estimates.
- Browse Related Terms: Alpha, Book value, Dividend yield, Earnings estimate, Earnings momentum, Earnings surprise, Forward price-to-earnings ratio, Multiple, Outstanding shares, Price-to-book ratio, Price-to-earnings ratio (P/E), Price-to-sales ratio, Quarter, risk ratio, Special situation, Undervaluation, valuation, Value stock, Whisper number, Zacks Investment Research
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When a company's earnings per share grow from year to year at an ever-increasing rate, that pattern is described as earnings momentum. One example might be a company whose earnings grow one year at 10%, the next year at 18%, and a third year at 25%.
In many cases, this momentum triggers an increase in the stock's share price as well, as investors identify the stock as one they expect to continue to grow and increase in value.
- Browse Related Terms: Alpha, Book value, Dividend yield, Earnings estimate, Earnings momentum, Earnings surprise, Forward price-to-earnings ratio, Multiple, Outstanding shares, Price-to-book ratio, Price-to-earnings ratio (P/E), Price-to-sales ratio, Quarter, risk ratio, Special situation, Undervaluation, valuation, Value stock, Whisper number, Zacks Investment Research
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Earnings per share (EPS) is calculated by dividing a company's total earnings by the number of outstanding shares.
For example, if a company earns $100 million in a year and has 50 million outstanding, or existing, shares, the earnings per share are $2.
Earnings per share can also be calculated on a fully diluted basis, by adding outstanding stock options, rights, and warrants to the outstanding shares.
The results report what EPS would be if all of those options, rights, and warrants were exercised and the company had to issue more shares to meet its obligations.
Earnings and other financial measures are provided on a per share basis to make it easier for you to analyze the information and compare the results to those of other investments.
- Browse Related Terms: Blue chip stock, Cook the books, Debt-to-equity ratio, Dividend payout ratio, Earnings per share (EPS), EBITDA, Free cash flow, Gross margin, Income statement, Net margin, Payout ratio, Price-to-cash flow, Profit margin, Return on equity, Revenue
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When a company's earnings report either exceeds or fails to meet analysts' estimates, it's called an earnings surprise.
An upside surprise occurs when a company reports higher earnings than analysts predicted and usually triggers an increase in the stock price.
A negative surprise, on the other hand, occurs when a company fails to meet expectations and often causes the stock's price to fall. Companies try hard to avoid negative surprises since even a small deviation can create a big stir.
- Browse Related Terms: Alpha, Book value, Dividend yield, Earnings estimate, Earnings momentum, Earnings surprise, Forward price-to-earnings ratio, Multiple, Outstanding shares, Price-to-book ratio, Price-to-earnings ratio (P/E), Price-to-sales ratio, Quarter, risk ratio, Special situation, Undervaluation, valuation, Value stock, Whisper number, Zacks Investment Research
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Earnings before interest, taxes, depreciation, and amortization are commonly shortened to EBITDA. EBITDA reports a company's profits before interest on debt and taxes owed or paid to the government are subtracted.
EBITDA is used to compare the profitability of a company with other companies of the same size in the same industry who may have different levels of debt or different tax situations.
- Browse Related Terms: Blue chip stock, Cook the books, Debt-to-equity ratio, Dividend payout ratio, Earnings per share (EPS), EBITDA, Free cash flow, Gross margin, Income statement, Net margin, Payout ratio, Price-to-cash flow, Profit margin, Return on equity, Revenue
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An economic cycle is a period during which a country's economy moves from strength to weakness and back to strength.
This pattern repeats itself regularly, though not on a fixed schedule. The length of the cycle isn't predictable either, and may be measured in months or in years.
The cycle is driven by many forces - including inflation, the money supply, domestic and international politics, and natural events.
In developed countries, the central bank uses its power to influence interest rates and the money supply to prevent dramatic peaks and deep troughs, smoothing the cycle's highs and lows.
This up and down pattern influences all aspects of economic life, including the financial markets. Certain investments or categories of investment that thrive in one phase of the cycle may lose value in another. As a result, in evaluating an investment, you may want to look at how it has fared through a full economic cycle.
- Browse Related Terms: Beige Book, Consumer confidence index, Currency fluctuation, Economic cycle, Economic indicator, Emerging market, Gross domestic product (GDP), Gross national product (GNP), growth rate, Index of Leading Economic Indicators, Recession, Sector, World Trade Organization (WTO)
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Economic indicators are statistical measurements of current business conditions.
Changes in leading indicators, including those that track factory orders, stock prices, the money supply, and consumer confidence, forecast short-term economic strength or weakness.
In contrast, lagging indicators, such as business spending, bank interest rates, and unemployment figures, move up or down in the wake of changes in the economy.
The Conference Board, a nonprofit business research firm, releases its weighted indexes of leading, lagging, and coincident indicators every month.
Though the individual components are also reported separately throughout the month, the indicators provide a snapshot of the economy's overall health.
- Browse Related Terms: Beige Book, Consumer confidence index, Currency fluctuation, Economic cycle, Economic indicator, Emerging market, Gross domestic product (GDP), Gross national product (GNP), growth rate, Index of Leading Economic Indicators, Recession, Sector, World Trade Organization (WTO)
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The way a country manages its money and resources (such as workers and land) to produce, buy, and sell goods and services.
- Browse Related Terms: Actively managed fund, Buy side, Closed-end fund, Economy, Enhanced index fund, index fund, Institutional investor, Managed account, Management fee, Money manager, Passively managed, Portfolio manager, Prudent man rule, Public company, Wrap account
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You can put up to $2,000 a year into a Coverdell education savings account (ESA) that you establish in the name of a minor child. The assets in the account can be invested any way you choose.
There is no limit on the number of accounts you can set up for different beneficiaries, but no more than a total of $2,000 can be contributed in a single beneficiary's name in any one year. If you choose, you may switch the beneficiary of an ESA to another member of the same extended family.
Your contribution is not tax deductible. But any earnings that accumulate in the account can be withdrawn tax free if they're used to pay qualified educational expenses for the beneficiary until he or she reaches age 30. The costs can be incurred at any level, from elementary school through a graduate degree, or at a qualified post-secondary technical or vocational school.
There are no restrictions on using ESA money in the same year the student uses other tax-free savings, or the student, parent, or guardian uses tax credits for educational expenses. But you can't take a credit for expenses you covered with tax-free withdrawals.
To qualify to make a full $2,000 contribution to an ESA, your modified adjusted gross income (MAGI) must be $95,000 or less, and your right to make any contribution at all is phased out if your MAGI is $110,000 if you're a single taxpayer. The comparable range if you're married and file a joint return is $190,000, phased out at $220,000.
- Browse Related Terms: 529 college savings plan, 529 Plan (Prepaid Tuition Plan), 529 prepaid tuition plan, Baccalaureate bond, Certificate of Accrual on Treasury Securities (CATS), CollegeSureî CD, Coverdell Education Savings Account, Early withdrawal, Education savings account (ESA), Hardship withdrawal, Hope scholarship credit, Investment horizon, Lifetime learning credit, Prepaid college savings plan, Prepaid college tuition plan, Tax-exempt
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Your effective tax rate is the rate you actually pay on all of your taxable income. You find your annual effective rate by dividing the tax you paid in the year by your taxable income for the year.
Your effective rate will always be lower than your marginal tax rate, which is the rate you pay on the income that falls into the highest tax bracket you reach.
For example, if you file your federal tax return as a single taxpayer, had taxable income of $75,000, and paid $15,332 in federal income taxes, your federal marginal tax rate would be 28% but your effective rate would be 20.4%. That lower rate reflects the fact that you paid tax on portions of your income at the 10%, 15%, and 25% rates, as well as the final portion at 28%.
- Browse Related Terms: Effective tax rate, flat tax, Marginal tax rate, Private letter ruling, Progressive tax, Regressive tax, Tax bracket
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When the information that investors need to make investment decisions is widely available, thoroughly analyzed, and regularly used, the result is an efficient market.
This is the case with securities traded on the major US stock markets. That means the price of a security is a clear indication of its value at the time it is traded.
Conversely, an inefficient market is one in which there is limited information available for making rational investment decisions and limited trading volume.
- Browse Related Terms: Arbitrage, Balance of trade, Decimal pricing, Downtick, Efficient market, Moving average, Odd lot, Round lot, Xenocurrency
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Proponents of the efficient market theory believe that a stock's current price accurately reflects what investors know about the stock.
They also maintain that you can't predict a stock's future price based on its past performance. Their conclusion, which is contested by other experts, is that it's not possible for an individual or institutional investor to outperform the market as a whole.
Index funds, which are designed to match, rather than beat, the performance of a particular market segment, are in part an outgrowth of efficient market theory.
- Browse Related Terms: Average, Breakout, Dogs of the Dow, Dow Jones 65 Composite Average, Dow Jones Industrial Average (DJIA), Dow Jones Transportation Average, Dow Jones Utility Average, Dow theory, Efficient market theory, Logarithmic scale, NASDAQ Composite Index, New York Stock Exchange Composite Index, Qubes, Value Line Composite Index, volume, Weighted stock index