Accounts, Tax & Retirement: SIE Glossary Terms

By Reviewed by Michael Carter Updated

Verified against current FINRA & SEC rules.

Account folder topped by a nest egg beside a calculator, representing accounts glossary terms

These 21 terms cover customer accounts and the tax rules that follow them. Three carry the most exam weight: Regulation T, the Federal Reserve rule setting 50% initial margin and the payment deadline; the Roth IRA, the exam’s favorite vehicle for contribution-and-withdrawal questions; and JTWROS (joint tenants with right of survivorship) the account registration where a deceased owner’s share passes to the survivor. Account registrations and the IRA pair reward straight memorization; the tax terms reward knowing which date or holding period controls.

Regulation T

Regulation T is the Federal Reserve rule that sets the initial margin requirement, 50% of a securities purchase, and requires customers to pay for trades no later than two business days after regular-way settlement.

The SIE® tests two numbers here. First, initial margin: a customer opening a margin position must deposit at least 50% of the purchase price. Second, the payment deadline: with regular-way settlement at T+1, Reg T payment is due S+2, three business days after the trade date. The payment deadline applies to cash accounts and margin accounts alike (though a cash account must deposit the full purchase price, not 50%) and a cash-account customer who sells shares before paying for them commits freeriding.

Watch the division of labor, a favorite distractor. The Federal Reserve wrote Regulation T under authority from the Securities Exchange Act of 1934, but FINRA, not the Fed, sets maintenance margin (25% long, 30% short) and the $2,000 minimum equity.

Example: a customer buys 200 shares at $50 in a margin account, a $10,000 purchase. The Reg T deposit is 50%, or $5,000; the broker-dealer lends the rest. If the trade happens Monday, it settles Tuesday (T+1), and Reg T payment is due Thursday (S+2). Miss the deadline without an extension and the firm must liquidate the position; in a cash account, non-payment also triggers a 90-day freeze.

Practice it: account types practice questions

Hypothecation

Hypothecation is a customer’s pledge of the securities in a margin account to the broker-dealer as collateral for the margin loan.

The SIE® tests this mostly as a vocabulary question, and the trap is the prefix. Hypothecation: the customer pledges securities to the firm. Rehypothecation: the firm re-pledges those customer securities to a bank to finance the loan it made. Same shares, two pledges, two different actors. The customer authorizes the first in the hypothecation agreement, one of the two mandatory documents for opening a margin account (the credit agreement is the other; the loan consent agreement is optional).

There is a number attached. A firm may rehypothecate customer securities worth up to 140% of the customer’s debit balance. Example: a customer buys $20,000 of stock, deposits the Regulation T 50% ($10,000) and borrows the remaining $10,000, so the debit balance is $10,000. The firm may pledge up to $14,000 of that customer’s securities (140% of $10,000) to a bank; securities above that line must be segregated and kept free of any lien.

If a question pairs “customer pledges to broker-dealer” with a blank, the answer is hypothecation. “Broker-dealer pledges to bank” is rehypothecation. Keeping the direction straight is usually the whole question.

Practice it: account types practice questions

JTWROS

JTWROS, joint tenants with right of survivorship, is a joint account registration in which a deceased owner’s interest passes directly to the surviving co-owner or co-owners, bypassing probate.

The SIE® tests three features. First, survivorship: when one owner dies, the survivors absorb the whole account automatically; nothing passes through the deceased’s estate. Second, equal undivided interests: every owner holds an identical share of the entire account, 50/50 for two owners, never 60/40. Third, authority versus distributions: any single owner may enter orders and make decisions for the account, but checks and distributions must be made payable to all owners jointly.

Example: spouses hold a $300,000 JTWROS account, each with an equal undivided interest. One spouse dies. The survivor now owns the full $300,000 without probate: the transfer happens by operation of law, though the deceased’s half may still count in their taxable estate.

The contrast case the exam loves is tenants in common, where a deceased owner’s share goes to their estate and ownership percentages may be unequal. A quick sorting rule: if the question says “outside probate” or “to the survivor,” think JTWROS; if it says “to the estate,” think TIC. Married couples typically choose survivorship; unrelated co-owners typically do not.

Practice it: account registrations practice questions

Tenants in Common (TIC)

Tenants in common (TIC) is a joint account registration in which each owner holds a stated fractional interest, and a deceased owner’s share passes to that owner’s estate rather than to the surviving co-owners.

The SIE® tests TIC almost entirely as the contrast to JTWROS, and two differences carry the questions. First, death: in a TIC account, the deceased’s percentage goes to their estate, and from there wherever the will directs, while the survivors keep only their own shares. Under JTWROS, the survivors absorb everything, outside probate. Second, ownership: TIC percentages may be unequal, while JTWROS interests are always equal and undivided.

Like other joint registrations, any TIC owner may enter orders for the account, but checks and distributions must be made payable to all owners jointly.

Example: two business partners open a TIC account worth $200,000, registered 60/40, a $120,000 interest and an $80,000 interest. The 60% owner dies. Their $120,000 passes to their estate for distribution under their will; the surviving partner still owns $80,000 and now shares the account with the estate or its heirs.

Unrelated parties (business partners, friends, siblings) typically choose TIC precisely because each owner’s share stays in their own estate plan. On the exam, the word “estate” in a joint-account question points to tenants in common.

Practice it: account registrations practice questions

UGMA/UTMA Account

A UGMA/UTMA account is a custodial account that holds irrevocable gifts of cash or securities for a minor, managed by one custodian until the child reaches the age of majority.

The SIE® tests this as a checklist. One minor and one custodian per account, no joint custodians, no siblings sharing. The account is opened under the minor’s Social Security number, because the minor is the beneficial owner. Every gift is irrevocable: the donor cannot take it back, and the custodian may use the assets only for the minor’s benefit, never their own.

Restrictions follow from ownership by a minor. UGMA/UTMA accounts are cash accounts only: no borrowing, so no margin account features, and no high-risk strategies such as uncovered option writing.

Taxes run through the child under the kiddie tax: a small amount of the minor’s unearned income (dividends, interest, capital gains) is untaxed or taxed at the child’s rate, and unearned income above the annual threshold is taxed at the parents’ marginal rate.

Control transfers at the age of majority set by state law, commonly 18 under UGMA and 21 under UTMA, with some UTMA states permitting later. Example: a grandmother gifts $15,000 of stock to an account for her 10-year-old grandson, with the boy’s father as custodian. The gift is final, the father manages it cash-only, and the account becomes the grandson’s outright at majority.

UGMA/UTMA sits alongside the other joint- and custodial-ownership registrations: JTWROS and tenants in common split ownership between adults, and the trusted contact person update protects an aging or vulnerable investor’s account the same way this one protects a minor’s.

Practice it: account registrations practice questions

Discretionary Account

A discretionary account is one in which the customer gives written authorization for a registered representative to place trades (choosing the security, the action, or the amount) without contacting the customer first.

The SIE® tests the boundary line, usually as the “three A’s.” Choosing the Asset (which security), the Action (buy or sell), or the Amount (how many shares or dollars) is discretion, and exercising it requires the customer’s prior written authorization plus the firm’s acceptance of the account. Choosing only the price or the time of execution is not discretion: if a customer says “buy 300 shares of XYZ today whenever the price looks best,” the rep may work that order the same day with no written authorization. It is a market not-held order, not a discretionary one.

Compare the order that does require paperwork: “buy $10,000 of whatever pharmaceutical stock you like.” The rep is picking the asset, so without written discretionary authority on file, entering that order is unauthorized trading.

Supervision is the other tested piece. Each discretionary order must be marked as discretionary when entered, and a principal must review discretionary activity promptly, watching for excessive trading. The written-authorization-before-first-trade sequence parallels options account approval, another setup step the exam likes to order-check.

Practice it: account types practice questions

Wrap Account

A wrap account bundles investment advice, trade execution, and account administration into one asset-based “wrap fee” instead of charging a commission on each trade.

The SIE® tests two things about wrap accounts. First, they are advisory products: because the customer pays an ongoing fee for advice rather than per-transaction commissions, the program sponsor is treated as an investment adviser, which is why the Investment Advisers Act reaches wrap programs. Second, suitability turns on the customer’s trading pattern, not on the product itself. The fee structure has to match how the account is actually used.

The favorite fact pattern is the buy-and-hold customer parked in a wrap account. A client who rarely trades pays the full asset-based fee for executions they never use and would come out ahead paying occasional commissions; recommending the wrap anyway is the “reverse churning” idea. Flip the facts and the answer flips: an active trader can pay less in a wrap account than under per-trade commissions. Also keep the wrap fee separate from a 12b-1 fee, which is a distribution fee charged inside a mutual fund, not an account-level charge for advice.

Example: a client who trades twice a year is moved into a wrap program charging an illustrative 1.5% of assets annually. Two commissions would have cost far less, so the recommendation is the classic unsuitable-wrap answer choice.

Practice it: account types practice questions

Options Account Approval

Options account approval is the required sequence a firm must complete before a customer trades options: deliver the disclosure document, have a principal approve the account, then collect the signed agreement.

The SIE® tests the order and the deadlines. Step one: the options disclosure document (ODD) (formally “Characteristics and Risks of Standardized Options”) must be delivered at or before account approval. Step two: a registered options principal (ROP) must approve the account before the first options trade is accepted, judging the customer’s financial situation, objectives, and experience. Step three: the customer must return the signed options agreement within 15 days of account approval. If the agreement does not come back in time, the account is limited to closing transactions only: existing positions can be closed, but no new positions may be opened.

Example timeline: the ROP approves an account on March 2, the ODD having been delivered with the application. The customer may trade immediately. But if the signed agreement has not arrived by March 17, 15 days later, an order to buy 5 new calls is rejected, while an order to sell calls already held goes through.

One pairing the exam likes: buying options happens in a cash account and must be paid in full, while uncovered option writing requires a margin account.

Practice it: options practice questions

Trusted Contact Person

A trusted contact person is an individual, age 18 or older, whom a customer names so the firm has someone to reach about possible financial exploitation, concerns about the customer’s health or whereabouts, or the identity of a guardian or power of attorney.

The SIE® tests two rules together. Under FINRA Rule 4512, a firm must make a reasonable effort to ask every customer for a trusted contact at account opening. But the customer may decline, and declining does not block the account. Under Rule 2165, when the firm reasonably suspects financial exploitation of a specified adult (a customer 65 or older, or 18 and older with an impairment) it may place a temporary hold on disbursements of funds or securities: 15 business days initially, extendable by 10 more, and by up to 30 more when a state regulator, agency, or court is involved, for a maximum of 55 business days.

What the trusted contact is not matters just as much. Naming one grants no trading authority, no right to withdraw money, and no discretion over the account. Contrast a discretionary account, where written authorization does hand over decisions.

Example: a 79-year-old client asks to wire $40,000 to an unfamiliar overseas payee. The firm suspects a scam, holds the disbursement for 15 business days, notifies the client and the trusted contact, and extends the hold, up to the 55-day maximum, while adult protective services investigates.

Practice it: account types practice questions

Traditional IRA

A traditional IRA is an individual retirement account funded with pre-tax (deductible) contributions that grow tax-deferred until the money is withdrawn.

The SIE® tests the full tax life cycle of this account. Contributions are generally deductible, so they reduce the investor’s taxable income in the year they are made. Earnings then compound with no annual tax bill. The trade-off comes at the end: because the money was never taxed going in, every dollar withdrawn is taxed as ordinary income coming out. Withdraw before age 59½ and a 10% early-withdrawal penalty is added on top of the ordinary income tax, with limited exceptions such as death or disability. The account cannot defer forever, either: the owner must begin required minimum distributions at age 73.

A number-driven example: an investor in the 24% bracket contributes $6,000 and deducts it, cutting her current tax bill by $1,440. Years later, at age 45, she withdraws $10,000. She owes ordinary income tax on the full $10,000 plus a $1,000 penalty, 10%, because she is under 59½.

The exam loves to contrast this account with its mirror image, the Roth IRA: after-tax money in, tax-free qualified money out, and no lifetime RMDs. If a question mentions a deduction today and taxable income later, it is describing the traditional IRA.

Practice it: retirement accounts practice questions

Roth IRA

A Roth IRA is an individual retirement account funded with after-tax contributions whose qualified withdrawals, earnings included, come out completely tax-free.

The SIE® tests the Roth as the mirror image of the traditional IRA. There is no deduction going in: contributions are made with money that has already been taxed. The reward comes on the way out. A withdrawal is qualified, and therefore tax-free, when the account has been open at least 5 years and the owner is at least 59½ (death, disability, and a first-home purchase up to $10,000 also qualify). Both conditions matter; a 62-year-old pulling earnings from a Roth opened 3 years ago fails the 5-year test.

Two more tested features. First, income limits: unlike a traditional IRA, high earners can be phased out of contributing to a Roth at all. Second, no lifetime RMDs: the owner is never forced to take required minimum distributions, so the account can keep compounding untouched for life.

The numbers show why the structure matters. An investor contributes $6,000 at age 30 and the position grows to $40,000 by age 65. A qualified withdrawal of the full $40,000 owes zero tax: $34,000 of earnings escapes taxation entirely. In a traditional IRA, that same $40,000 would be fully taxable as ordinary income.

Practice it: retirement accounts practice questions

401(k) Plan

A 401(k) plan is an employer-sponsored retirement plan that lets employees defer part of their salary pre-tax, often with a matching contribution from the employer.

The SIE® tests the 401(k) as the workplace counterpart to the traditional IRA. Salary deferrals go in before tax, reducing the employee’s current taxable income. Growth is tax-deferred, distributions are taxed as ordinary income, a 10% penalty generally applies before age 59½, and RMDs begin at age 73. The employer match is the feature the exam singles out: it is compensation the employee gives up by not participating. A common formula is 50% of the first 6% of salary deferred: on an $80,000 salary, an employee deferring 6% puts in $4,800 and the employer adds $2,400.

The 401(k) also shows up as the source account in rollover scenarios. When a customer leaves a job, a representative may recommend rolling the balance into an IRA, and that recommendation falls squarely under Regulation Best Interest. The rep must weigh fees, investment options, services, and penalty exceptions in the plan against the IRA, not the compensation the firm would earn. Recommending an IRA rollover simply because it generates a commission violates Reg BI’s care obligation.

If a question pairs “salary deferral” with “employer match,” the answer is the 401(k).

Practice it: retirement accounts practice questions

IRA Rollover

An IRA rollover moves retirement money by paying it out to the owner, who then has 60 days to redeposit it into an IRA to avoid tax.

The SIE® tests the rollover against its cleaner cousin, the direct transfer, and the differences are the whole question. In a rollover, sometimes called an indirect rollover, the check is made out to the customer. The customer has 60 days to get the full amount into an IRA; miss the window and the entire distribution becomes taxable, plus a 10% penalty if the owner is under 59½. Rollovers between IRAs are also limited to once per 12 months across all of the person’s IRAs combined.

A direct trustee-to-trustee transfer has none of those restrictions: the money moves between custodians, never touches the customer’s hands, faces no withholding, and can be done an unlimited number of times.

The numbers get sharper when the source is an employer plan. An indirect rollover from a 401(k) triggers mandatory 20% federal withholding. A customer cashing out a $50,000 balance receives a check for only $40,000, yet must deposit the full $50,000 into a traditional IRA within 60 days, covering the missing $10,000 from his own pocket until tax time. The direct transfer avoids the problem entirely, which is why it is usually the right answer.

Practice it: retirement accounts practice questions

Wash-Sale Rule

The wash-sale rule disallows a tax loss when the investor buys a substantially identical security within 30 days before or after the sale that produced the loss.

The SIE® tests the window first: 30 days before the loss sale, the sale date itself, and 30 days after, a 61-day danger zone. “Substantially identical” reaches beyond the same stock to securities convertible into it, such as call options, rights, warrants, and convertible bonds of the same issuer. Buying the bonds of a different company in the same industry does not trigger the rule.

The loss is disallowed, not destroyed. It is added to the cost basis of the replacement shares, so the tax benefit is deferred until those shares are sold. Example: an investor buys 100 shares of XYZ at $50 ($5,000), sells at $40 ($4,000) for a $1,000 loss, then buys 100 shares back at $42 twenty days later. The $1,000 loss is disallowed, and the new position’s basis becomes $4,200 + $1,000 = $5,200.

The second tested point is vocabulary. A wash sale is a tax rule: the trade is legal; only the loss deduction is denied. A wash trade is market manipulation: matched buying and selling with no real change in ownership, done to fake trading volume, and it is prohibited. Exam writers count on candidates mixing the two up.

Practice it: dividends and returns practice questions

Cost Basis

Cost basis is what an investor paid for a security, the purchase price plus transaction costs, and it is the starting line for measuring gain or loss at sale.

The SIE® tests basis as arithmetic: proceeds minus basis equals the capital gain or loss. The harder questions test what changes basis along the way. Stock splits and stock dividends are not taxable events; they spread the same total basis over more shares, so the per-share basis drops while the total stays put. Return-of-capital distributions, common with REITs and some funds, are not taxed when received; instead they reduce basis dollar for dollar. Once basis reaches zero, any further return of capital is taxed as capital gain.

Follow one position through: an investor buys 100 shares at $60, so total basis is $6,000. A 2-for-1 split leaves her with 200 shares at a $30 per-share basis, total still $6,000. The company then pays a $2-per-share return of capital: $400 comes off the total, leaving $5,600, or $28 per share. If she later sells at $35, her gain is $7 per share, not $5, because the split and the distribution both moved her basis.

Inherited securities play by a different rule entirely: they take a step-up in basis to the value at the owner’s death.

Practice it: dividends and returns practice questions

Capital Gain

A capital gain is the profit realized when a security is sold for more than its cost basis.

The SIE® tests one cutoff above all: the holding period. Hold a security for more than one year and the gain is long-term, taxed at preferential rates of 0%, 15%, or 20% depending on income. Hold it for exactly one year or less and the gain is short-term, taxed as ordinary income at the investor’s regular bracket. There is no partial credit. One day decides the category.

Run the numbers on that one day. An investor buys stock for $8,000 on March 10, 2025 and it is worth $11,000 a year later. Selling on March 10, 2026 (exactly one year) makes the $3,000 gain short-term; in the 24% bracket that is $720 of tax. Selling on March 11, 2026 makes it long-term; at 15% the tax is $450. Waiting a single day saves $270.

Two related points round out the topic. A gain is only taxed when realized. Paper appreciation on a position still held owes nothing. And the same preferential long-term rates apply to a qualified dividend, which is why the exam often tests the two side by side. Capital losses offset gains first, then up to $3,000 of ordinary income per year, with the excess carried forward.

Practice it: dividends and returns practice questions

Qualified Dividend

A qualified dividend is a dividend taxed at the lower long-term capital-gains rates instead of ordinary-income rates, provided the investor meets a holding-period requirement.

The SIE® tests qualified dividends by contrast. Meet the requirements and the dividend is taxed at 0%, 15%, or 20%, the same preferential rates as a long-term capital gain. Fail them and the dividend is ordinary income at the investor’s regular bracket. To qualify, the dividend must come from a U.S. corporation (or qualifying foreign company) and the investor must hold the stock for more than 60 days in the window surrounding the ex-dividend date. A trader who buys just to capture the dividend and sells right after does not get the lower rate.

The contrast the exam loves most: REIT distributions are generally NOT qualified. A REIT pays no corporate tax on income it passes through, so the shareholder pays ordinary-income rates on those distributions. Bond interest and money-market income are ordinary income as well. The qualified label belongs to dividends on stock.

The dollar difference is easy to test. An investor in the 24% bracket receives $1,000 of dividends. If qualified, the tax is $150 at the 15% rate. If the same $1,000 came from a REIT, the tax is $240. Same cash in the account, $90 apart at tax time, and that gap is exactly what the question is checking.

Practice it: dividends and returns practice questions

Step-Up in Basis

A step-up in basis resets the cost basis of inherited securities to their fair market value on the date of the owner’s death.

The SIE® tests two clean rules here, and both favor the heir. First, the heir’s cost basis is the security’s value at the date of death. The decedent’s original purchase price, and all the unrealized gain built up during their lifetime, simply disappears for income-tax purposes. Second, the heir’s holding period is automatically long-term, no matter how long the decedent owned the security or how quickly the heir sells. Any later capital gain gets the preferential rates from day one.

The contrast the exam draws is with gifted securities, which get no step-up. A gift carries over the donor’s original basis and holding period, so the built-in gain travels with the shares.

The numbers make the difference vivid. A father bought stock decades ago for $10,000; it is worth $90,000 when he dies. His daughter inherits it with a $90,000 basis and sells at $95,000, a $5,000 long-term gain. Had he instead gifted her the same shares shortly before his death, her basis would be his $10,000, and the same sale would produce an $85,000 gain. Identical stock, identical sale price, wildly different tax bills, which is why exam questions hinge on the single word “inherited” or “gifted.”

Practice it: dividends and returns practice questions

Drill these terms

When the definitions feel solid, drill them with account types practice questions, account registrations practice questions, and retirement accounts practice questions, or browse the full SIE exam glossary.

Accounts pair with compliance & conduct for the suitability and privacy rules that govern them, trading, markets & economy for the settlement and order mechanics behind every trade in the account, and funds & packaged products for what actually sits inside an IRA or margin account. For a full pass at this section, see the Section 3 practice questions.

Related pages

Terms with their own page in this cluster

Every Accounts, Tax & Retirement term below is defined in full on its own page, with the exam angle and a worked example.

The other SIE glossary clusters

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