Resources
Glossary
Plain-English definitions of the equity compensation, tax, retirement, and wealth management terms that come up most often.
100 terms for people navigating RSUs and stock options, an IPO, acquisition, or tender offer, a concentrated stock position, or the transition to retirement. Definitions are educational summaries of general rules as of 2026, not tax, legal, or investment advice for any individual situation; tax figures are for the 2026 tax year unless noted.
0–9
- 10b5-1 plan(link to this term)Also: Rule 10b5-1 trading plan
A written plan, adopted while an insider is not aware of material nonpublic information, that sets the amounts, prices, and dates of future trades in company stock in advance. Under the SEC's 2023 amendments, directors and officers face a cooling-off period before the first trade of the later of 90 days after adoption or two business days after the Form 10-Q or 10-K for the quarter of adoption is filed (capped at 120 days), and most other persons face 30 days. A properly adopted plan can let sales proceed during blackout periods.
- 72(t) distributions(link to this term)Also: Substantially equal periodic payments, SEPP
An exception to the 10% early-withdrawal penalty on IRA and retirement-plan withdrawals before age 59½, available when the account owner takes a series of substantially equal periodic payments calculated under IRS-approved methods. Payments must continue for the later of five years or until age 59½; modifying the schedule early generally triggers the penalty retroactively, plus interest.
Related:Transitioning to RetirementEarly retirement account access
- 83(b) election(link to this term)
A filing with the IRS, due within 30 days of receiving restricted stock (or early-exercised option shares), that elects to recognize income on the shares' value at grant rather than as they vest. If the value then is at or near the price paid, little or no income is recognized and the capital-gains holding period starts immediately. The trade-off: tax paid up front is generally not recoverable if the shares are later forfeited or lose value.
Related:Early exercising and 83(b) electionsTech Equity Compensation
- 409A valuation(link to this term)
An independent appraisal of a private company's common stock, used to set stock-option strike prices at no less than fair market value under Internal Revenue Code Section 409A. A valuation by a qualified independent appraiser is generally presumed reasonable for up to 12 months unless a material event, such as a new financing round, occurs. It is typically well below the preferred-stock price paid by investors.
Related:Startup stock options explained
A
A federal tax credit that lowers the cost of health insurance bought through an Affordable Care Act Marketplace, based on household income relative to the federal poverty level (FPL). Temporary enhanced credits that removed the 400%-of-FPL eligibility cap were set to expire after 2025; without them, the credit is generally unavailable above 400% of FPL (the "subsidy cliff"). Current-year eligibility rules are published at HealthCare.gov.
Related:ACA health insurance for early retireesTransitioning to Retirement
- Accredited investor(link to this term)
An SEC category of investor permitted to buy many private offerings. Individuals generally qualify with income over $200,000 ($300,000 with a spouse or partner) in each of the last two years and a reasonable expectation of the same this year, net worth over $1 million excluding a primary residence, or certain professional licenses such as the Series 7, 65, or 82.
Related:Accredited investor overview
- Alternative minimum tax (AMT)(link to this term)Also: AMT
A parallel federal tax calculation that adds back certain preferences, most notably the spread on exercised incentive stock options, and taxes the result at 26% or 28%; taxpayers pay whichever of regular tax or AMT is higher. For 2026 the exemption is $90,100 (single) or $140,200 (married filing jointly), and after the One Big Beautiful Bill Act it phases out at 50 cents per dollar above $500,000 and $1,000,000 of AMT income, respectively.
Related:ISO AMT CalculatorAMT planning
- AMT credit(link to this term)Also: Minimum tax credit
A credit generated when AMT is paid because of timing items such as ISO exercises. It carries forward indefinitely and can reduce regular tax in later years when regular tax exceeds the AMT calculation, including the year the ISO shares are sold. Recovering it can take several years, depending on future income.
Related:AMT planningISO AMT Calculator
- Annual gift tax exclusion(link to this term)
The amount a person can give to any number of recipients each year without filing a gift tax return or using lifetime exemption: $19,000 per recipient in 2026 ($38,000 for a married couple electing gift-splitting). The figure is indexed for inflation.
Related:Annual gifting strategy
- Anti-hedging policy(link to this term)
A company rule, disclosed in public-company proxy statements, that restricts employees or directors from hedging or pledging company stock with collars, puts, short sales, or margin loans. It can rule out some strategies for managing a concentrated position, so it is usually checked before any hedge is considered.
Related:Concentrated Stock
- Asset allocation(link to this term)
How a portfolio is divided among broad categories such as stocks, bonds, cash, and alternatives. It is a primary driver of a portfolio's long-run risk and return, and is typically set around goals, time horizon, and tolerance for losses. No allocation eliminates the risk of loss.
Related:Asset allocation principles
- Asset location(link to this term)
Placing investments in taxable, tax-deferred, or tax-free accounts according to how each is taxed, for example holding tax-inefficient bond income in an IRA and broad stock index funds in a taxable account. It changes where assets sit, not the overall allocation.
Related:Tax-efficient asset location
- AUM fee(link to this term)Also: Assets-under-management fee
An advisory fee charged as a percentage of the assets an adviser manages, commonly billed quarterly. Because it rises and falls with account value, the adviser's compensation moves with the client's portfolio; it is paid in addition to fund expenses and any custodial costs.
Related:Fees & Pricing
B
- Backdoor Roth IRA(link to this term)
A two-step technique for people whose income exceeds the Roth IRA contribution limits: make a nondeductible contribution to a traditional IRA, then convert it to a Roth IRA. If the person holds other pre-tax IRA balances, the pro-rata rule makes part of the conversion taxable.
Related:Backdoor Roth IRA
- Bargain element(link to this term)Also: Spread
The difference between a stock's fair market value on the exercise date and the option's strike price, multiplied by the shares exercised. For NSOs it is taxed as ordinary income at exercise; for ISOs it is not regular income at exercise but is an adjustment for the alternative minimum tax.
- Blackout period(link to this term)
A window, usually around quarterly earnings or significant corporate events, when a company's insider trading policy prohibits covered employees from trading company stock. Trades under a previously adopted 10b5-1 plan may still execute during a blackout.
Related:Concentrated Stock
- Breakpoint fee schedule(link to this term)Also: Tiered fee schedule
A fee schedule in which the percentage rate falls as account size crosses set asset levels. Some advisers apply each rate only to the assets within its tier (a blended rate), while others apply a single rate to the whole portfolio once a breakpoint is reached; the adviser's Form ADV Part 2A describes which method applies.
Related:Fees & Pricing
C
- Capital loss carryforward(link to this term)
Net capital losses beyond what offsets capital gains in a year can reduce ordinary income by up to $3,000 ($1,500 if married filing separately), with the rest carried forward indefinitely for individuals. Harvested losses can therefore offset gains from future stock sales.
Related:Tax-Loss Harvesting
- Charitable remainder trust (CRT)(link to this term)Also: CRT, CRUT, CRAT
An irrevocable trust that pays an income stream to the donor or other beneficiaries for life or a term of up to 20 years, with the remainder going to charity. Because the trust itself is generally tax-exempt, appreciated stock contributed to it can be sold without immediate capital-gains tax; distributions are taxed to the recipients over time, and the donor receives a partial charitable deduction.
Related:Charitable remainder trusts
- COBRA(link to this term)
A federal law that lets employees and their families keep an employer's group health plan after leaving a job, generally for up to 18 months (longer in some circumstances), by paying up to 102% of the full premium. It is often compared with ACA Marketplace coverage when retiring before Medicare eligibility at 65.
Related:COBRA vs. Marketplace coverageTransitioning to Retirement
- Collar(link to this term)
An options strategy on a stock already owned: buying a put to set a floor and selling a call to cap the upside, with the call premium offsetting some or all of the put's cost (a "zero-cost" collar). It narrows the range of outcomes in both directions, and a collar that is too tight may be treated as a constructive sale for tax purposes.
- Concentrated position(link to this term)Also: Concentrated stock
A single stock, often an employer's, that makes up a large share of a person's net worth or portfolio. It exposes the holder to company-specific risk that diversification would otherwise reduce, and unwinding it often involves trade-offs among taxes, trading restrictions, and market risk.
- Constructive sale(link to this term)
Under Internal Revenue Code Section 1259, certain transactions that eliminate substantially all of the risk and reward of an appreciated position, such as a short sale against the box or some tightly struck collars and forwards, are taxed as if the stock were sold. Hedging strategies are structured with this rule in mind.
Related:Concentrated stock hedging
- Cost basis(link to this term)
The tax value of an investment used to measure gain or loss when it is sold, usually the purchase price plus costs. For RSUs and NSOs it is generally the fair market value included in income at vesting or exercise; broker-reported basis on Form 1099-B sometimes omits that amount, which can lead to paying tax twice if not corrected.
Related:RSU Tax Calculator
- Covered call(link to this term)
Selling a call option on shares already owned in exchange for a premium. The premium provides income, but the seller gives up gains above the strike price and may have the shares called away, which can create a taxable sale; the shares still carry full downside risk less the premium received.
D
- Deferred compensation plan (409A)(link to this term)Also: Nonqualified deferred compensation, NQDC
An employer plan, governed by Internal Revenue Code Section 409A, that lets eligible employees defer salary or bonus, and the income tax on it, to a later year. Deferral and distribution elections generally must be made in advance and are hard to change, and the balance is an unsecured promise of the employer, so it is exposed to the company's credit risk.
Related:Deferred compensation (409A)Deferred comp withdrawal strategies
- Direct indexing(link to this term)
Owning the individual stocks of an index in a separately managed account instead of buying an index fund. Holding each stock separately allows harvesting losses on individual names, excluding or underweighting certain stocks (such as an employer's), and customizing; it can also introduce tracking error relative to the index.
- Direct listing(link to this term)
A way of going public in which a company lists its existing shares on an exchange without a traditional underwritten offering. Existing shareholders are often able to sell from the first trading day rather than waiting out a standard lockup, though company-specific restrictions can still apply.
Related:Liquidity Event
- Disqualifying disposition(link to this term)
A sale of ISO or tax-qualified ESPP shares before the holding periods are met (two years from grant and one year from exercise or purchase). Part of the gain is taxed as ordinary compensation income rather than long-term capital gain; for ISOs, a disqualifying sale in the same year as exercise can also remove the AMT adjustment.
Related:ESPP strategyISO exercise timing
- Diversification(link to this term)
Spreading investments across many securities, sectors, asset classes, and regions so that the poor performance of any one has less effect on the whole. It can reduce company-specific risk but does not assure a profit or prevent losses in a declining market.
Related:Correlation and diversification
- Donor-advised fund (DAF)(link to this term)Also: DAF
A charitable account held by a sponsoring public charity: the donor receives a tax deduction in the year of contribution (subject to AGI limits) and recommends grants to charities over time. Contributing appreciated stock held more than a year generally allows a deduction at fair market value without recognizing the capital gain. Contributions are irrevocable.
Related:Donor-advised fundsDAF timing
- Double-trigger RSU(link to this term)
A restricted stock unit, common at private companies, that is settled only after two conditions are met: the time-based vesting schedule and a liquidity event such as an IPO or acquisition. Because income is not recognized until both triggers occur, several years of vested units can become taxable at once when the liquidity event happens.
Related:Liquidity EventRSU basics
E
- Early exercise(link to this term)
Exercising stock options before they vest, when a company's plan allows it; the unvested shares remain subject to the company's right to repurchase them if employment ends. Paired with a timely 83(b) election, it can start the capital-gains and QSBS holding periods early, but it requires paying the exercise cost, and possibly tax, on shares that may never be worth more.
- Employee stock purchase plan (ESPP)(link to this term)Also: ESPP, Section 423 plan
A plan that lets employees buy company stock through payroll deductions, often at a discount of up to 15% under a tax-qualified (Section 423) plan. Purchases under a qualified plan are limited to $25,000 of stock per calendar year, measured at the offering-date price. How the discount and gain are taxed depends on whether the eventual sale is a qualifying or disqualifying disposition.
- Estate tax exemption(link to this term)Also: Lifetime exemption, Unified credit
The amount a person can transfer during life or at death before federal gift or estate tax applies: $15 million per person in 2026 ($30 million for a married couple), as set by the One Big Beautiful Bill Act and indexed for inflation after 2026. Some states impose their own estate or inheritance taxes at lower thresholds.
- Estimated tax payments(link to this term)Also: Safe harbor
Quarterly payments toward the current year's tax on income not covered by withholding, such as stock sales or under-withheld equity income. Underpayment penalties are generally avoided by paying, through withholding and estimates, at least 90% of this year's tax or 100% of last year's tax (110% if last year's AGI exceeded $150,000, or $75,000 if married filing separately).
- Exchange fund(link to this term)
A private partnership in which many investors contribute appreciated stock in exchange for an interest in the pooled, more diversified portfolio, generally without triggering capital-gains tax at contribution. To avoid investment-company treatment, which would make contributions taxable, the fund keeps at least 20% of its assets outside readily marketable securities (often real estate), and participants generally stay in at least seven years because earlier distributions of contributed property can trigger the deferred gain. Original cost basis carries over, and fees and illiquidity apply.
- Expense ratio(link to this term)
The annual operating cost of a mutual fund or ETF, expressed as a percentage of assets and deducted from fund returns. It is separate from, and in addition to, any advisory fee.
Related:Fees & Pricing
F
- Fair market value (FMV)(link to this term)Also: FMV
The price at which property would change hands between a willing buyer and seller. For public stock it is generally the trading price on the relevant date; for private-company common stock it is usually set by a 409A valuation and drives option strike prices and the tax on equity awards.
Related:Startup stock options explained
- Fee-only(link to this term)
A compensation model in which an adviser is paid solely by client fees, such as an asset-based, hourly, or flat fee, and receives no commissions or product-sales compensation. It removes commission-related conflicts but not every conflict, since, for example, an asset-based fee rewards the adviser for managing more assets.
- Fiduciary(link to this term)
A person or firm legally required to act in a client's best interest. Registered investment advisers owe clients a fiduciary duty of care and loyalty under the Investment Advisers Act and state law, including disclosing material conflicts of interest.
Related:Choosing a financial advisor
- Form ADV(link to this term)
The registration form investment advisers file with the SEC or state regulators. Part 1 contains regulatory information about the firm; Part 2A (the brochure) describes services, fees, conflicts, and disciplinary history in plain English; and Part 2B supplements describe the individuals who give advice. Filings are publicly searchable at adviserinfo.sec.gov.
Related:Fees & Pricing
- Form CRS(link to this term)Also: Client relationship summary
A short, standardized disclosure, generally no more than two pages for an adviser, that retail investors receive from advisers and broker-dealers. It summarizes the services offered, fees and costs, conflicts of interest, standard of conduct, and any disciplinary history, with suggested questions to ask.
Related:FAQ
- Full retirement age(link to this term)Also: FRA
The age at which a person can claim an unreduced Social Security retirement benefit: 67 for anyone born in 1960 or later. Claiming as early as 62 permanently reduces the monthly benefit, and delaying past full retirement age earns delayed-retirement credits up to age 70.
G
- Gifting appreciated stock(link to this term)
Donating shares that have risen in value, rather than cash, to a charity or donor-advised fund. For shares held more than a year, the donor can generally deduct fair market value (subject to AGI limits) and neither the donor nor the charity pays capital-gains tax on the appreciation. Gifts to family instead carry over the donor's basis.
Related:Gifting appreciated stock
- Grantor retained annuity trust (GRAT)(link to this term)Also: GRAT
An irrevocable trust that pays the grantor a fixed annuity for a set term, with any growth above an IRS-set interest rate passing to beneficiaries with little or no gift tax. It is often funded with assets expected to appreciate, such as pre-IPO stock; if the grantor dies during the term or the assets underperform, the benefit is lost.
Related:GRATs
H
- Health savings account (HSA)(link to this term)Also: HSA
A tax-advantaged account available to people covered by an HSA-eligible high-deductible health plan. Contributions are deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free; contribution limits are indexed annually, and new contributions stop once Medicare coverage begins.
Related:HSA strategy
I
- Incentive stock option (ISO)(link to this term)Also: ISO
An employee stock option that receives favorable tax treatment: no regular income tax at exercise, and long-term capital-gains treatment on the full gain if shares are held two years from grant and one year from exercise. The spread at exercise is, however, an AMT adjustment; only $100,000 of ISOs (by grant-date value) can first become exercisable per year, and ISOs generally must be exercised within three months after employment ends to keep their status.
- Initial public offering (IPO)(link to this term)Also: IPO
A private company's first sale of shares to the public, typically underwritten by investment banks, after which its stock trades on an exchange. For employees it usually brings a lockup period, insider trading restrictions, and, for double-trigger RSUs, a large taxable settlement.
- Insider(link to this term)
Someone with access to material nonpublic information about a company, including officers, directors, and many employees covered by the company's insider trading policy. Section 16 insiders (officers, directors, and holders of more than 10% of a registered class of a public company's equity) must also report trades on Form 4 within two business days and are subject to short-swing profit rules.
Related:Concentrated Stock
- IRMAA(link to this term)Also: Income-related monthly adjustment amount
A surcharge added to Medicare Part B and Part D premiums for higher-income beneficiaries, generally based on modified AGI from two years earlier. For 2026 premiums, it applies in tiers above $109,000 (individual) or $218,000 (married filing jointly) of modified AGI. A large stock sale or Roth conversion can raise premiums two years later, and certain life-changing events, such as stopping or reducing work, allow a request for a new determination.
L
- Liquidity event(link to this term)
A transaction that turns private-company equity into cash or publicly tradable stock, such as an IPO, direct listing, acquisition, or tender offer. It often concentrates tax, trading-restriction, and diversification decisions into a short period.
Related:Liquidity EventLiquidity events
- Lockup period(link to this term)
A contractual period after an IPO, often 180 days, during which pre-IPO shareholders, including employees, agree not to sell their shares. Some lockups include early-release provisions tied to stock price or earnings; the stock can be volatile when a large lockup expires.
- Long-term capital gains(link to this term)
Gains on assets held more than one year, taxed federally at 0%, 15%, or 20% depending on taxable income, plus the 3.8% net investment income tax for higher earners. Assets held one year or less produce short-term gains, taxed at ordinary income rates. States such as California tax all capital gains as ordinary income.
Related:Capital gains tax ratesOrdinary income vs. capital gains
- Lookback provision(link to this term)
An ESPP feature that sets the purchase price using the lower of the stock's price at the start of the offering period or on the purchase date, before applying the discount. When the stock rises during the offering, the effective discount can be much larger than the stated discount.
Related:ESPP strategy
M
- Marginal tax rate(link to this term)
The tax rate that applies to the next dollar of income. It differs from the effective (average) rate on all income, and it is the relevant rate when weighing the tax on an additional RSU vest, option exercise, or Roth conversion.
Related:Tax bracket management
- Mega backdoor Roth(link to this term)
Making after-tax (non-Roth) contributions to a 401(k) above the regular deferral limit and then converting them to Roth through an in-plan conversion or a rollover to a Roth IRA. Total employee and employer contributions are capped at $72,000 in 2026 (not counting catch-up contributions), and the plan must permit both after-tax contributions and conversions or in-service withdrawals.
Related:Mega backdoor Roth
N
- Net investment income tax (NIIT)(link to this term)Also: NIIT, Medicare surtax
A 3.8% federal tax on the lesser of net investment income (such as capital gains, dividends, and interest) or modified AGI above $200,000 (single) or $250,000 (married filing jointly). The thresholds are not indexed for inflation. Wages, including RSU and NSO income, are not investment income, but they count toward the threshold.
Related:NIIT and the Medicare surtax
- Net unrealized appreciation (NUA)(link to this term)Also: NUA
A tax rule for employer stock held in a 401(k): if the shares are distributed in kind as part of a qualifying lump-sum distribution, ordinary income tax applies only to their original cost basis, and the appreciation is taxed as long-term capital gain when sold. It is an alternative to rolling the stock into an IRA, where all future withdrawals are ordinary income.
Related:Net unrealized appreciation
- Nonqualified stock option (NSO)(link to this term)Also: NSO, NQSO, Non-qualified stock option
A stock option without the special tax treatment of an ISO. The spread at exercise is taxed as ordinary income (and, for employees, subject to payroll-tax withholding), and later appreciation is a capital gain or loss when the shares are sold.
O
- OCIO(link to this term)Also: Outsourced chief investment officer
An arrangement in which an institution such as a foundation, endowment, or retirement plan delegates day-to-day investment management, and often policy implementation, to an outside firm. The board or committee typically retains oversight and sets the investment policy.
Related:Fees & Pricing
P
- Performance stock unit (PSU)(link to this term)Also: PSU
A restricted stock unit whose number of shares earned depends on meeting performance goals, such as revenue targets or relative stock return, over a multi-year period. The final payout can range from zero to a multiple of the target, and it is taxed as ordinary income when shares are delivered.
Related:Executive compensation overview
- Post-termination exercise period(link to this term)Also: PTEP, Exercise window
The time a former employee has to exercise vested stock options after leaving, commonly 90 days, though some companies allow years. Options not exercised by the deadline are forfeited, and ISOs exercised more than three months after departure are treated as NSOs.
Related:Post-termination exercise window
- Prepaid variable forward(link to this term)Also: PVF
A contract, usually with an investment bank, to deliver a variable number of shares at a future date in exchange for an upfront cash payment equal to a portion of the stock's current value. The number of shares delivered depends on the future price, which sets a floor and a cap; when structured to avoid a constructive sale, tax on the gain is deferred until settlement. These are complex, and the IRS has challenged some structures.
- Pro-rata rule(link to this term)
The IRS rule that treats all of a person's traditional, SEP, and SIMPLE IRAs as one account when calculating the taxable portion of a Roth conversion. Pre-tax balances therefore make part of any backdoor Roth conversion taxable; rolling them into an employer plan beforehand is one common approach.
Related:Backdoor Roth IRA
- Protective put(link to this term)
Buying a put option on stock already owned, which gives the right to sell at the strike price until expiration. It sets a floor on losses below the strike for the option's term in exchange for the premium paid, which reduces returns if the stock does not fall.
Related:Protective putsOptions Overlay
Q
- Qualified client(link to this term)
An SEC standard that determines when an investment adviser may charge performance-based fees. Effective June 29, 2026, an individual generally qualifies with at least $1.4 million managed by the adviser or a net worth over $2.7 million excluding a primary residence (up from $1.1 million and $2.2 million); state rules may differ.
- Qualified custodian(link to this term)
A bank, registered broker-dealer, or similar regulated institution that holds client assets. Under the custody rules, advisers generally keep client funds and securities at a qualified custodian, which sends account statements directly to clients so they can verify holdings independently of the adviser.
- Qualified dividends(link to this term)
Dividends from U.S. corporations and certain foreign corporations that are taxed at long-term capital-gains rates rather than ordinary income rates, provided the common shares were held more than 60 days during the 121-day period beginning 60 days before the ex-dividend date.
Related:Qualified vs. ordinary dividends
- Qualified purchaser(link to this term)
A higher investor standard than accredited investor under the Investment Company Act, generally an individual or family company owning at least $5 million in investments. Some private funds, including many exchange funds, accept only qualified purchasers.
Related:Accredited investor overview
- Qualified small business stock (QSBS)(link to this term)Also: QSBS, Section 1202
Stock in a qualifying domestic C corporation, acquired at original issuance, whose gain may be partly or fully excluded from federal tax under Section 1202. For stock acquired after July 4, 2025, the One Big Beautiful Bill Act allows a 50% exclusion after three years, 75% after four, and 100% after five, with a per-issuer cap of the greater of $15 million or 10 times basis and a $75 million gross-asset limit; earlier stock generally needs five years and has a cap of the greater of $10 million or 10 times basis. Some states, including California, do not follow the federal exclusion.
- Qualifying disposition(link to this term)
A sale of ISO or tax-qualified ESPP shares after both holding periods are met: two years from the grant (or ESPP offering) date and one year from exercise or purchase. For ISOs, the entire gain is then long-term capital gain; for ESPPs, a limited portion tied to the discount is still ordinary income.
Related:ESPP strategy
R
- Rebalancing(link to this term)
Periodically trading a portfolio back toward its target allocation after market moves cause it to drift. It keeps risk closer to the intended level, but in taxable accounts it can realize gains, so it is often done with new cash, dividends, or tax-lot selection.
Related:Rebalancing strategies
- Registered investment adviser (RIA)(link to this term)Also: RIA
A firm registered with the SEC or a state securities regulator to provide investment advice for compensation. RIAs owe clients a fiduciary duty and must disclose their services, fees, and conflicts in Form ADV. Registration does not imply a certain level of skill or training.
Related:Choosing a financial advisor
- Required minimum distribution (RMD)(link to this term)Also: RMD
The minimum amount that must be withdrawn each year from traditional IRAs and most employer retirement plans once the owner reaches the required age: 73 for people born 1951 through 1959 (proposed IRS regulations resolve a drafting ambiguity for 1959 in favor of 73), and 75 for those born in 1960 or later. Roth IRAs, and since 2024 Roth 401(k)s, have no RMDs during the owner's lifetime.
Related:Required minimum distributions
- Restricted stock award (RSA)(link to this term)Also: RSA, Restricted stock
Actual shares granted or sold to an employee up front, subject to forfeiture or company repurchase until they vest. Without an 83(b) election, income is recognized as the shares vest; RSAs are most common at early-stage companies when the share value is low.
- Restricted stock unit (RSU)(link to this term)Also: RSU
A promise by an employer to deliver shares (or their cash value) once vesting conditions are met. The shares' value at vesting is taxed as ordinary wage income, and that value becomes the cost basis for any later gain or loss.
Related:RSU basicsRSU Tax CalculatorTech Equity Compensation
- Roth conversion(link to this term)
Moving money from a pre-tax IRA or plan account to a Roth account, paying ordinary income tax on the amount converted in that year. Qualified future withdrawals are then tax-free and Roth IRAs have no lifetime RMDs; conversions are often considered in lower-income years, such as between retirement and RMD age, and cannot be undone.
Related:Roth conversion strategiesTransitioning to Retirement
- Rule 144(link to this term)
An SEC rule providing a safe harbor for reselling restricted securities and securities held by company affiliates. Restricted shares of a public reporting company generally have a six-month holding period; affiliates such as officers and directors also face volume limits, manner-of-sale conditions, and Form 144 filings for larger sales.
Related:Concentrated Stock
- Rule of 55(link to this term)
An exception that allows penalty-free withdrawals from the 401(k) or 403(b) of the employer a person leaves in or after the calendar year they turn 55 (50 for certain public-safety employees). It applies only to that employer's plan, not to IRAs, and ordinary income tax still applies.
Related:Early retirement account access401(k) withdrawal rules
S
- Safe withdrawal rate(link to this term)Also: 4% rule
The percentage of a portfolio that can be withdrawn in the first year of retirement, then adjusted for inflation, with a low historical rate of running out of money. The 4% rule comes from 1990s research on 30-year U.S. market history; it is a planning benchmark, not an assurance, and results vary with markets, fees, time horizon, and spending flexibility.
- Secondary sale(link to this term)
A sale of existing private-company shares by a shareholder, such as an employee or early investor, to another buyer, rather than new shares issued by the company. Secondaries usually require company approval, may be subject to a right of first refusal, and often price at a discount to the latest funding round.
- Section 351 exchange(link to this term)Also: 351 ETF conversion
A tax-deferred transfer of property to a corporation in exchange for its stock, used to seed a new ETF with an investor's existing securities. To qualify, the contributed portfolio must already be diversified (generally no more than 25% of value in any one issuer and no more than 50% in the five largest), so a single concentrated position usually cannot be contributed on its own. Under IRS Rev. Rul. 2026-20 (September 2026), the deferral does not apply when the ETF, as part of the same plan, soon redeems an authorized participant with the contributed securities; that "seed-and-swap" conversion is treated as a taxable exchange.
Related:Exchange Fund vs. 351 ExchangeSection 351 ETF conversions
- Section 1045 rollover(link to this term)
A provision that lets a non-corporate holder defer gain on QSBS held more than six months by reinvesting the proceeds in other QSBS within 60 days. The replacement stock inherits the deferred gain and the holding period, which can help it later qualify for the Section 1202 exclusion.
Related:QSBS guide
- Securities-based line of credit(link to this term)Also: SBLOC, Portfolio line of credit
A loan secured by an investment portfolio, which can provide cash without selling appreciated holdings. The borrower pays interest, and if the collateral falls in value the lender can demand more collateral or sell securities, possibly at an inopportune time; concentrated positions usually have lower borrowing limits.
Related:Securities-backed lending
- Sell-to-cover(link to this term)
A method of paying the tax withholding due when RSUs vest or options are exercised by automatically selling just enough shares to cover the withholding (and, for options, the exercise cost). The remaining shares are delivered to the employee's brokerage account.
Related:RSU Tax Calculator
- Sequence-of-returns risk(link to this term)
The risk that poor returns early in retirement, while withdrawals are being taken, permanently reduce how long a portfolio lasts, even if average returns over the full period are the same. It is most pronounced in the years just before and after retirement.
A measure of return per unit of risk: an investment's return above a risk-free rate divided by its volatility (standard deviation). A higher historical Sharpe ratio means more return was earned for the volatility taken, but it does not predict future results.
- Specific-lot identification(link to this term)Also: Specific share identification, Tax-lot selection
Choosing which purchase lots of a security to sell, for example the highest-basis or long-term lots, instead of the broker default, usually first-in, first-out (FIFO). The lots must be identified to the broker by the trade's settlement; it can change the size and character of the taxable gain.
Related:Concentrated Stock Calculator
- Step-up in basis(link to this term)
The reset of an inherited asset's cost basis to its fair market value at the owner's death under Section 1014, so appreciation during the owner's lifetime generally escapes capital-gains tax. In community-property states, both halves of community property can receive the adjustment at the first spouse's death. Assets in retirement accounts do not receive a step-up.
Related:Step-up in basis
- Strike price(link to this term)Also: Exercise price
The fixed per-share price at which an option holder can buy (or, for a put, sell) the underlying stock. Employee stock options are generally granted with a strike price at least equal to the stock's fair market value on the grant date.
Related:Stock options 101
- Supplemental wage withholding(link to this term)Also: Supplemental withholding
The flat federal income-tax withholding rate employers may use for bonuses, RSU vesting, and NSO exercises: 22% on supplemental wages up to $1 million in a year and a mandatory 37% on the amount above. Because many tech employees' actual marginal rates exceed 22%, equity income is often under-withheld, which can leave a balance due at filing.
T
- Tax-gain harvesting(link to this term)Also: Capital gains harvesting
Deliberately realizing capital gains in a year when they would be taxed at a low rate, often the 0% long-term rate, to raise cost basis for the future. There is no wash-sale rule for gains, so the investment can be repurchased immediately.
Related:Capital gains harvesting
- Tax-loss harvesting(link to this term)
Selling investments below their cost basis to realize losses that can offset capital gains and up to $3,000 of ordinary income per year, then reinvesting in a similar but not substantially identical holding to keep market exposure. It generally defers tax rather than eliminating it, because the replacement has a lower basis, and it must respect the wash-sale rule.
- Tender offer(link to this term)
An offer, often organized by a private company or its investors, to buy shares from existing shareholders at a set price within a limited window. Participation is voluntary and may be capped per person; tax treatment depends on the type of equity sold and whether the sale is treated as compensation.
Related:Tender offersTender offer decision frameworkLiquidity Event
- Tracking error(link to this term)
The standard deviation of the difference between a portfolio's returns and its benchmark's returns. It measures how closely a strategy, such as a direct-indexing account that excludes certain stocks, follows its index, whether the difference turns out positive or negative.
Related:Direct Indexing
- Trading window(link to this term)Also: Open window
The period, usually beginning shortly after quarterly earnings are released and ending before the next quarter closes, when a company's insider trading policy allows covered employees to trade company stock. Some policies also require pre-clearance of each trade.
Related:Concentrated Stock
V
- Vesting cliff(link to this term)Also: Cliff vesting
An initial period, commonly one year, before any portion of an equity grant vests; at the cliff a block vests at once (for example 25% of a four-year grant), with the rest typically vesting monthly or quarterly after that. Leaving before the cliff generally forfeits the entire grant.
- Vesting schedule(link to this term)
The timetable over which equity compensation becomes the employee's to keep, typically based on continued service (for example, four years with a one-year cliff) and sometimes on performance or a liquidity event. Unvested awards are usually forfeited when employment ends.
Related:RSU basics
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- Wash-sale rule(link to this term)
An IRS rule that disallows a loss on a sale if substantially identical securities are bought within 30 days before or after the sale, including purchases in a spouse's account or an IRA. A disallowed loss is usually added to the basis of the replacement shares; for IRA purchases, it is lost permanently. RSU vesting and ESPP purchases in the same stock can trigger it.