Letter: D

Spreading your money among various types of investments to reduce your risk of loss. You can diversify your 401(k) by investing it in a combination of different mutual funds such as stock funds, bond funds, and money market funds.

The money you withdraw from your 401(k) account. Distributions may be taken starting at age 59 ½. Distributions taken before then are subject to a 10% early withdrawal penalty. You are required to begin taking distributions after age 70 ½.

A type of retirement plan sponsored by employers in which the employee makes regular contributions to an individual account. Employers can also make contributions to employee accounts. Unlike a “defined benefit plan” such as a pension, a defined contribution plan does not pay out a specific predetermined amount. The money is invested and allowed to grow; the amount you have at retirement depends on how well your investments perform.

At retirement the money can be withdrawn along with any investment gains; you will pay income tax on the withdrawals. 401(k), 403(b), and 457 plans are all examples of defined contribution plans.

The percentage of your annual pay that is deposited into your 401(k) account. The income tax you pay on this money is deferred until you take your 401(k) distributions in retirement.