Glossary
T
- Tax Advantages
Tax advantages include federal tax-deferred earnings and tax-free distributions from a 529 plan, as well as any state income tax deduction or tax credit for contributions to the state’s 529 plan.
- Tax Credit
A tax credit is a direct reduction in a tax liability. Some states have 529 tax credits.
- Tax Deduction
A tax deduction is a reduction in taxable income. Some states have 529 tax deductions. (In New Mexico, 100% of contributions to your 529 account with The Education Plan are deductible from your New Mexico state taxable income each year.)
- Tax Deferred
When taxes are deferred, they are paid at a future date instead of when the income or gain was originally earned. This can shift the taxes to a time when the taxpayer has a lower tax bracket or a situation when the tax liability is disregarded, such as a qualified distribution from a 529 plan.
- Tax Penalty
A tax penalty is additional federal tax that serves as a disincentive for certain activities, such as non-qualified distributions from a 529 plan.
- Total Return
The total return on an investment is the percentage change in the investment’s net asset value, assuming that all dividends and capital gains distributions are reinvested.
- Trust Fund
A trust fund is a set of assets that are held by a trustee for the benefit of one or more beneficiaries.
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