Glossary

Plain-English definitions of the terms used across this site. Each links to the guide where the concept is explained in full. This is educational reference material, not tax advice.

After-tax contributions

Money put into a 401(k) beyond pre-tax/Roth limits, already taxed. The basis comes out tax-free; the growth is taxable unless moved to Roth — the engine behind the mega-backdoor Roth.

Backdoor Roth IRA

A way to fund a Roth above the income limits: contribute to a non-deductible traditional IRA, then convert it. Clean only if you have little other pre-tax IRA money — see the pro-rata rule. More in the Roth conversion guide.

Basis

The amount already taxed in an account or asset. Withdrawing basis isn't taxed again; only gains above basis are.

Conversion (Roth)

Moving pre-tax retirement money into a Roth, where it's added to ordinary income now but grows and withdraws tax-free later. See Roth conversions.

Custodian

The institution that legally holds an IRA's assets and handles reporting. A self-directed IRA needs a custodian that permits alternative assets; holding an asset is not an endorsement of it.

Depletion allowance

A deduction that lets oil & gas working-interest owners shelter a portion (commonly ~15%) of production income under IRC §613A — tax efficiency beyond the year-one IDC deduction.

Disqualified person

Under IRC §4975, people and entities an IRA can't transact with — you, your spouse, your parents/children and their spouses, and entities you control. Siblings are not included. See SDIRA rules.

Five-year rule

Two separate Roth clocks: one for penalty-free access to converted principal, and one (plus age 59½) for tax-free earnings. Detailed in the conversion guide.

Intangible drilling costs (IDC)

The non-salvageable costs of drilling a well (labor, fuel, site prep). Individual working-interest owners can deduct 100% in year one as an ordinary loss under IRC §263(c) — which can offset Roth conversion income. See the oil & gas strategy.

IRMAA

The Income-Related Monthly Adjustment Amount — a surcharge that raises Medicare Part B and D premiums at higher incomes (2026: above ~$109K single / ~$218K joint), on a two-year lookback. Traditional withdrawals can trigger it; Roth withdrawals don't. See withdrawals & taxes.

Marginal tax rate

The rate on your next dollar of income. A large conversion is taxed at your marginal rate and can push you through several brackets at once.

Mega-backdoor Roth

Routing after-tax 401(k) contributions into Roth via in-plan conversion, up to the overall plan limit ($72,000 in 2026). See advanced strategies.

Net investment income tax (NIIT)

A 3.8% surtax on investment income once modified AGI exceeds $200K single / $250K joint. A conversion isn't itself investment income, but the higher income can pull your other investment income into NIIT.

Net unrealized appreciation (NUA)

A break that lets appreciated employer stock leave a 401(k) taxed at long-term capital-gains rates on the growth, rather than ordinary rates. See advanced strategies.

Ordinary income

Income taxed at standard rates (wages, interest, traditional-account withdrawals, Roth conversions) — as opposed to lower long-term capital-gains rates.

Pro-rata rule

When you hold any pre-tax money across your traditional/SEP/SIMPLE IRAs, each conversion is treated as a proportional blend of pre-tax and after-tax dollars — you can't convert only the after-tax portion. See the rule explained.

Prohibited transaction

A dealing between an IRA and a disqualified person (selling to it, using its property, sweat equity, lending). It can disqualify the entire IRA under IRC §4975. See SDIRA rules.

Provisional income

The income measure (other income plus half your Social Security) that determines how much of your benefit is taxable — up to 85%. Roth withdrawals don't count toward it.

Qualified charitable distribution (QCD)

A direct IRA-to-charity gift from age 70½ (about $108K for 2025, indexed) that satisfies RMDs and stays out of income. See withdrawals & taxes.

Qualified distribution

A Roth withdrawal that's fully tax-free — generally once you're 59½ and your first Roth has been open five years.

Qualified small business stock (QSBS)

Stock in certain C-corp small businesses whose gain can be partly or fully excluded from federal tax under IRC §1202, subject to holding-period and company-size rules. See advanced strategies.

Required minimum distribution (RMD)

The amount you must withdraw annually from traditional accounts starting at age 73 (rising to 75 in 2033), taxed as ordinary income. Roth IRAs have none for the owner. See withdrawals & taxes.

Roth IRA

An account funded with after-tax dollars that grows tax-free, withdraws tax-free when qualified, and has no lifetime RMDs for the owner.

Self-directed IRA (SDIRA)

An IRA at a custodian that permits alternative assets — real estate, private equity, notes, energy — under the same tax rules, plus the prohibited-transaction limits. See the SDIRA guide.

Traditional IRA

A pre-tax retirement account: contributions may be deductible, growth is tax-deferred, and withdrawals are taxed as ordinary income (with RMDs).

UBIT / UDFI

Taxes that can reach inside an otherwise tax-exempt IRA: UBIT on active-business income, and UDFI on income from debt-financed assets (e.g., a mortgage on IRA-owned real estate), under IRC §§511–514.

Working interest

A direct ownership stake in an oil & gas operation that bears its share of costs. It's treated as non-passive under IRC §469(c)(3), which is why its IDC deductions can offset other ordinary income.