Category: Financial Terms

Understanding 501(c) Organizations Section 501(c) of the Internal Revenue Code defines nonprofit organizations that are exempt from federal income tax. These organizations serve public or member-focused purposes—charitable, religious, educational, social welfare, professional, recreational, or mutual—and must meet IRS requirements and, in most cases, apply for recognition to obtain and maintain tax-exempt status. Key takeaways 501(c)…

501(c)(3) Organizations — Overview, Requirements, and Practical Guidance Key takeaways * 501(c)(3) organizations are tax-exempt nonprofits established for charitable, religious, educational, scientific, literary, public-safety testing, amateur sports, or animal/children-cruelty-prevention purposes. * Donations to qualifying 501(c)(3)s are generally tax-deductible for donors (subject to AGI limits). * To keep tax-exempt status, a 501(c)(3) must pursue its stated…

500-Shareholder Threshold: What It Was and How It Worked The 500-shareholder threshold was an SEC rule that required companies with 500 or more distinct shareholders to register under the Securities Exchange Act of 1934 and begin public disclosure of financial and other material information. The requirement came from Section 12(g) and obligated affected issuers to…

5/6 Hybrid Adjustable-Rate Mortgage (5/6 Hybrid ARM) A 5/6 hybrid adjustable-rate mortgage (ARM) carries a fixed interest rate for the first five years, then the rate adjusts every six months for the remainder of the loan term. It blends features of a fixed-rate mortgage (initial stability) with those of an ARM (later variability). Key takeaways…

5/1 Hybrid Adjustable-Rate Mortgage (5/1 Hybrid ARM) Overview A 5/1 hybrid adjustable-rate mortgage (5/1 ARM) starts with a fixed interest rate for the first five years, then the rate adjusts once a year thereafter. The “5” denotes the five-year fixed period; the “1” indicates annual adjustments after that. Monthly payments can change—sometimes substantially—after the initial…

48-Hour Rule Key takeaways The 48-hour rule requires sellers of to-be-announced (TBA) mortgage-backed securities (MBS) to disclose the specific mortgage pool details to buyers no later than 3:00 p.m. Eastern Time, 48 hours before the trade’s settlement date. The rule is enforced by the Securities Industry and Financial Markets Association (SIFMA). It brings transparency to…

457 Plan What is a 457 plan? A 457 plan is a tax-advantaged retirement savings plan available to employees of state and local governments and some tax-exempt organizations. The most common form is the 457(b), which lets participants defer income into a retirement account on a pre-tax basis (reducing current taxable income) or, if offered,…

412(i) Plan: What It Was and How It Worked What a 412(i) plan was A 412(i) plan was a tax-qualified defined-benefit pension plan designed primarily for small-business owners and their employees in the United States. Its defining features: Benefits were fully guaranteed. Funding was limited to insurance products—guaranteed annuities or a combination of annuities and…

408(k) Plan: What It Is and How It Compares to a 401(k) Key takeaways A 408(k) plan is the simplified employee pension (SEP) version of an individual retirement account (IRA) sponsored by an employer. Only employers (including self-employed business owners) may contribute to a 408(k)/SEP IRA; employees do not make salary-reduction contributions. Employer contributions are…

403(b) Plan (Tax‑Sheltered Annuity) What is a 403(b)? A 403(b) plan, also called a Tax‑Sheltered Annuity (TSA), is a workplace retirement savings plan offered to employees of public schools, certain government agencies, and qualifying tax‑exempt nonprofit organizations. Eligible participants typically include teachers, school administrators, professors, nurses, librarians, government employees, and clergy. Key takeaways Operates like…

What is a 401(k)? A 401(k) is an employer-sponsored, tax-advantaged retirement savings plan named for a section of the U.S. tax code. It’s a defined-contribution account: employees (and often employers) put money into an investment account, and retirement income depends on the accumulated contributions and investment returns. There are two primary types: – Traditional 401(k):…

401(a) Plan: What It Is, Contribution Rules, and Withdrawal Guidelines A 401(a) plan is an employer-sponsored, tax-advantaged retirement plan most commonly offered by government agencies, educational institutions, and nonprofit organizations. Employers design and control the plan’s rules—including eligibility, contribution structure, vesting, and investment options—and participation is often mandatory. Key points Employers and employees can both…

341 Meeting: What It Is, How It Works, Example A 341 meeting, or “meeting of creditors,” is a required step in a bankruptcy proceeding—most commonly Chapter 7. Named for section 341 of the U.S. Bankruptcy Code, it gives the court-appointed trustee and any attending creditors an opportunity to question the debtor, verify documents, and confirm…

30-Year Treasury: Meaning, History, Examples Key takeaways The 30-year Treasury is a U.S. government bond with a 30-year maturity that pays interest semiannually and returns face value at maturity. It historically served as a long-term benchmark, though the 10-year Treasury is now more commonly referenced. Price relative to face value depends on the bond’s coupon…

3P Oil Reserves: What They Mean and How They Work Key takeaways 3P reserves = proven + probable + possible reserves; an inclusive, optimistic estimate of a company’s recoverable hydrocarbons. Categories carry different probabilities: proven ≈ 90% (P90), probable ≈ 50% (P50), possible ≈ 10% (P10). 3P totals can be optimistic and are often audited…

Understanding 3D Printing: Process, Uses, and Industry Examples Three-dimensional (3D) printing, also known as additive manufacturing, builds physical objects from digital designs by depositing material layer by layer. It’s transforming product development, enabling complex geometries, reducing waste, and reshaping supply chains—while still facing constraints for high-volume mass production. How 3D Printing Works (Overview) Design: A…

Understanding the 3(c)(7) Exemption From SEC Regulations What the 3(c)(7) exemption is Section 3(c)(7) of the Investment Company Act of 1940 permits certain private investment funds to avoid registration and many of the Act’s disclosure requirements by limiting investors to “qualified purchasers.” This exemption is commonly used by hedge funds, private equity, and venture capital…

3(c)(1) Exemption (3C1): What It Is and How It’s Applied Overview 3(c)(1) refers to a provision of the Investment Company Act of 1940 that exempts certain private investment funds from being treated as registered investment companies subject to the Act’s registration, disclosure, and operational requirements. Funds that meet the 3(c)(1) criteria can operate with fewer…

3/27 Adjustable-Rate Mortgage (ARM) A 3/27 adjustable-rate mortgage (ARM) is a 30-year home loan that carries a fixed interest rate for the first three years and a variable rate for the remaining 27 years. It’s a hybrid mortgage often used as a short-term financing tool with the intention to sell or refinance before the adjustable…

3-6-3 Rule: Slang for How Banks Used to Operate What the 3-6-3 Rule Means The “3-6-3 rule” is a jokey shorthand describing how U.S. commercial banks allegedly operated in the 1950s–1970s: pay depositors 3% interest, lend at 6% interest, and be out playing golf by 3 p.m. It captures a period of limited competition and…

3-2-1 Buydown Mortgage: Meaning, Pros and Cons, FAQs Key takeaways A 3-2-1 buydown temporarily lowers a mortgage interest rate for the first three years: 3% below the note rate in year one, 2% in year two, and 1% in year three. The original rate applies from year four onward. It’s commonly subsidized by sellers, homebuilders,…

25% Rule: Meaning, How It Works, and Rules Key takeaways The “25% rule” is a heuristic used in two contexts: public finance (municipal debt) and intellectual property royalties. In public finance it suggests total long-term debt should not exceed 25% of a government’s annual budget. In intellectual property it suggests a licensee pay a royalty…

2011 U.S. Debt Ceiling Crisis: Meaning and Outcome Key takeaways The 2011 debt ceiling standoff in Congress revolved around whether to raise the legal limit on federal borrowing and under what fiscal conditions. Congress resolved the crisis with the Budget Control Act of 2011, which raised the debt ceiling by about $2.4 trillion in phased…

2000 Investor Limit: What It Is, How It Works, and an Example What the 2,000 investor limit is The 2,000 investor limit is an SEC threshold that determines when a private company must register and publicly disclose financial information under the Securities Exchange Act. A company that has more than 2,000 distinct shareholders and more…

2/28 Adjustable-Rate Mortgage (2/28 ARM): Meaning and How It Works A 2/28 adjustable-rate mortgage (2/28 ARM) is a 30-year home loan with a fixed interest rate for the first two years and a variable rate for the remaining 28 years. The initial “teaser” rate is usually lower than comparable fixed-rate mortgages, after which the rate…

2-1 Buydown What is a 2-1 buydown? A 2-1 buydown is a temporary mortgage financing arrangement that lowers the interest rate for the first two years of a loan. The rate is typically: – 2 percentage points below the permanent rate in year one, – 1 percentage point below in year two, – then the…

1979 Energy Crisis: Definition, Causes, and Impact Overview The 1979 energy crisis was the second major oil shock of the 1970s (after 1973). Triggered by political turmoil in Iran, it produced a sharp rise in crude-oil prices, short-term supply disruptions, widespread panic buying, and gasoline rationing in parts of the United States. Although global oil…

183-Day Rule: Definition and How It Affects Tax Residency Key takeaways The 183-day rule is a common threshold used by many countries to decide whether an individual is a tax resident—generally meaning presence for 183 days or more in a year. The U.S. uses a more complex “substantial presence test” that weights days present over…

18-Hour City: Meaning, Features, and Examples What is an 18-hour city? An 18-hour city is a mid-size metropolitan area—typically under one million residents—that offers many of the services, amenities, and job opportunities found in major “24-hour” global cities but without continuous, around-the-clock activity. These cities are attractive for residents, businesses, and real estate investors because…

What is the 130-30 strategy? The 130-30 strategy is an active long/short equity approach that uses short sales to finance extra long exposure. Typical implementation allocates 130% of starting capital to long positions and 30% to short positions, producing a net market exposure of 100% while increasing gross exposure to 160%. The goal is to…

Understanding 12B-1 Plans What is a 12B-1 plan? A 12B-1 plan is a mutual fund arrangement that funds the marketing and distribution of fund shares through intermediaries (broker-dealers, financial advisors, and distribution platforms). It defines how distributors and intermediaries are compensated for selling and servicing the fund. How it works Mutual funds create 12B-1 plans…

12b-1 Fund: What It Means and How It Works What is a 12b-1 fund? A 12b-1 fund is a mutual fund that charges shareholders a recurring 12b-1 fee to pay for distribution and marketing expenses. These fees are taken from the fund’s assets and appear as part of the fund’s expense ratio. Because the cost…

What is a 12b-1 fee? A 12b-1 fee is an annual charge that some mutual funds assess to cover marketing, distribution and shareholder-servicing expenses. It is named after Rule 12b-1 under the Investment Company Act of 1940 and is included in a fund’s expense ratio. Purpose and history Rule 12b-1 was adopted in 1980 to…

125% Loan A 125% loan is a leveraged mortgage that lets a homeowner borrow up to 125% of a property’s appraised value. For example, on a $300,000 home a 125% loan would provide up to $375,000. How it works Loan-to-value (LTV): A 125% loan has an LTV of 125% (loan amount ÷ appraised value). Lenders…

11th District Cost of Funds Index (COFI) What it was The 11th District Cost of Funds Index (COFI) was a monthly index that represented the average interest rate paid by savings institutions in Arizona, California, and Nevada on checking and savings accounts. Launched in 1981 and published by the Federal Home Loan Bank of San…