401(k) Plan
A 401(k) plan is an employer-sponsored, tax-advantaged retirement savings plan. These plans fund with pre-tax employee- (and often matching employer-) contributions. Then, the accounts grow tax-free until withdrawal. 401(k) plans often provide employees with a choice of investment options--typically mutual funds.
403(b) Plan
A 403(b) plan is a tax-advantaged retirement savings program. It is available to employees of public education organizations, certain non-profits, and some self-employed ministers. Employees make pre-tax salary deferrals into the plan. These contributions grow tax-deferred until withdrawal.
457 Plan
The 457 Plan is a non-qualified, tax-advantaged, deferred-compensation retirement program. It is available for governmental and some tax-exempt non-governmental organizations. The employer sponsors the plan and the employee defers compensation into it on a pretax or after-tax (Roth) basis. This plan operates similarly to 401(k) and 403(b) plans. However, a key difference is that—unlike those plans—it has no 10% penalty for withdrawal before the age of 55. Still, the withdrawal remains subject to ordinary income taxation.
Annual Rate of Return
Annual rate of return is the gain or loss an investment incurs over the course of a year. This value is a time-weighted annual percentage.
Balance
The amount available in an account. The balance is the net of all credits minus all debits. A positive account balance indicates the holder has money. Meanwhile, a negative balance indicates the holder owes money. Account balances are important because they are indicative of whether the holder has money for living expenses.
Compound Interest
Compound interest is interest that accrues on both the initial principal and the accumulated interest from previous periods. Thus, over time, the principal increases exponentially. For example, a $1,000 loan earning compound interest at 10% per year would grow to $1,100 at the end of the first year. Then, based on the formula below, it would accumulate to $1,210 at the end of the second year:
Compound Sum = Principal (1 + Interest Rate) Number of Periods
$1,210 = $1,000 (1.10)2
By extension, the more frequently the compounding, the greater the yield will be.