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Meaning / Definition of

Direct Investment

Categories: Stocks,

You can make a direct investment in a company's stock through dividend reinvestment plans (DRIPs) and direct purchase plans (DPPs). If a company in which you own stock offers a DRIP, you have the opportunity to re-invest cash dividends and capital gains distributions in more stock automatically each time they are paid. In the case of DPPs, also known as direct stock purchase plans (DSPs), companies can sell their stock directly to investors without using a brokerage firm as intermediary.Direct investment also refers to long-term investments in limited partnerships that invest in real estate, leased equipment, and energy exploration and development. In this type of investment, you become part owner of the hard assets of the enterprise.You realize income from your investment by receiving a portion of the business's profits, for example, from rents, contractual leasing payments, or oil sales. In some cases you realize capital gains at the end of the investment term, if the business sells its assets.These DPPs are largely nontraded and have no formal secondary markets. This means you will often have to hold the investment for terms of eight years or more, with no guarantee that any of the income or capital gains will materialize. Many people make direct investments because there can be significant tax benefits, such as tax deferral and tax abatement, depending on the investment.

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Definition / Meaning of

Roth 401(k)

Categories: Retirement and Pension,

The Roth 401(k) retirement plan, which was introduced in 2006, allows you to make after-tax contributions to your account. Earnings may be withdrawn tax free, provided that you are at least 59 1/2 and your account has been open five years or more.Both the Roth 401(k) and the traditional 401(k) have the same contribution limits and distribution requirements. You can add no more than the annual federal limit each year, and you must begin taking required minimum distributions (RMD) by April 1 of the year following the year you reach age 70 1/2. You can postpone RMDs if you are still working.You may not move assets between traditional and Roth 401(k) accounts, though you may be able to split your annual contribution between the two. If you leave your job or retire, you can roll Roth 401(k) assets into a roth ira, just as you can roll traditional 401(k) assets into a traditional ira.Most 401(k) plans, including the Roth, are self-directed, which means you must choose specific investments from among those offered through the plan.

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