Borrowing From Your 401(K) Plan

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  • State: Welcome to the Morgan Stanley Smith Barney Borrowing from Your 401(k) Plan seminar. I am pleased that you took time out of your busy day to attend this seminar. My name is __________. I am a Financial Advisor with Morgan Stanley Smith Barney. Your company has invited me to provide a seminar designed to help you make more informed decisions with respect to borrowing from your 401(k) plan. Go to next slide
  • State: Although a loan from a 401(k) plan can provide a ready and convenient source of funds if you need to access your 401(k) assets, the decision to take a loan from your 401(k) should not be made lightly. If not handled appropriately, or if taken for unnecessary reasons, a 401(k) loan can have a negative impact on your long-term retirement goals. This seminar will review how a loan from a 401(k) works, examine the potential advantages and downsides of these loans, and discuss factors that you will need to consider before deciding to take a loan from your 401(k). Go to next slide
  • State: As companies have shifted more of the burden for saving and investing for retirement to individuals, 401(k) plans, for most of us, have become the primary means of saving and growing assets for retirement. For this reason, it is essential to take full advantage of your 401(k) plan by contributing to the plan and keeping these assets invested for retirement. However, in some cases and when no other options are available, you may need to access your 401(k) to cover short-term or unexpected needs. In the case of such emergencies, 401(k) plan loans can offer a relatively quick and penalty-free solution. Knowing that your assets are available to you if you need them can make it easier to make a sizable commitment to your 401(k). However, there are risks involved with 401(k) loans and if care is not taken these loans can easily derail your retirement goals. State: A loan from a 401(k) should generally only be taken in cases where there is a real need and other sources of funds are not readily available or are too costly. While a participant may decide to take a loan from a 401(k) for a variety of reasons, the most common are to: Pay for college tuition Cover uninsured medical expenses Fund the purchase of a primary residence Prevent being evicted or defaulting on a mortgage Go to next slide
  • State: In some ways, the term “loan” is not necessarily the best way to describe what happens when you borrow from your 401(k) plan. Let’s compare a loan from your 401(k) to other types of more traditional loans to get a better idea of the differences. Click to reveal first graphic State: With a traditional loan, you borrow money from a bank or other lender. In return, you agree to pay back the loan with interest over a specified period of time. You may also have to pay certain fees upfront as part of the loan agreement. You then make regular payments comprised of principal and interest until the loan is repaid. Click to reveal second graphic State: With a loan from your 401(k), you are effectively borrowing from yourself rather than from a third party. The amount of the loan is deducted from your 401(k) plan balance and you agree to pay back the amount plus interest in regular payments over a specified period of time, generally five years. As you pay back principal and interest, they are reinvested in the 401(k) plan. Since you already own the assets that are “borrowed,” a loan from your 401(k) is not so much a loan as it is an early withdrawal combined with a schedule of required repayments. Go to next slide
  • State: 401(k) plans also place specific limitations on the amount that can be borrowed from the plan. Click to reveal first bullet – Minimum account balance State: In order to be eligible for a loan, you must have a vested account value that exceeds the plan’s required minimum account balance. While the minimum balance can vary between plans, it is generally at least $2,000. Click to reveal second bullet – Minimum loan amount State: Most plans also require that the loan amount be above a specified minimum amount (e.g., $1,000). If you wish to take a loan from the plan, the amount of the loan must equal or exceed this minimum. Click to reveal third bullet and table – Maximum loan amount State: Most plans allow you to borrow the greater of: 100% of your vested account balance up to $10,000 or 50% of your vested account balance up to a maximum of $50,000. Keep in mind that the relevant percentage is based on the vested portion of the plan. If your employer makes matching contributions and the plan has a vesting schedule for these contributions, only the vested amount will be included when calculating the maximum loan amount. Click to reveal fourth bullet – Adjustment for multiple loans State: Plans often allow participants to have more than one outstanding loan. However, they generally restrict the number of outstanding loans at any one time. In the case of multiple loans, the maximum amount of a new loan will be limited by any outstanding loan balances within the past year. If you have had an outstanding loan in the past year, your maximum loan amount will be limited to 50% of the vested account balance up to $50,000 less the highest outstanding loan balance within the last 12 month period. This amount must still be subtracted even if the full outstanding balance has been repaid during that 12-month period. Go to Next Slide
  • State: Let’s look at some examples to better illustrate how the maximum loan amount is calculated. Click to reveal first table State: In order to cover uninsured medical expenses, an individual determines that he needs to take a loan from his 401(k) with a current vested account balance of $60,000. As he has no outstanding loans, the maximum amount of the loan available to him is 50% of his vested account balance of $60,000, or $30,000. Since he does not need the full amount of the available loan, he takes a loan for $15,000 leaving an account balance of $45,000. Click to reveal second table State: Two years later, the same individual has been making loan payments and his current vested account value is back up to $50,000. Although he has not yet paid back his outstanding loan balance in full, he would like to take another loan to help out with the first-time purchase of a home. If he did not have an outstanding loan balance in the past 12 months, he would be able to take a loan for 50% of $50,000, or $25,000. However, since he has had an outstanding loan within the past 12 months, he will need to subtract his highest loan balance within that one-year period from the maximum amount of the loan. Since, his highest loan balance within the past 12 months was $9,000, 12 months previously, the maximum amount of the loan he will be able to take at this time is $16,000. ($25,000 – $9,000 = $16,000) Go to next slide
  • Click to reveal each bullet State: While the specific terms of the loan and its repayment may differ somewhat between plans, the following terms generally apply: Fees – Some plans may charge an upfront fee at the time of the loan and others may charge a yearly service fee for the loan. Interest rate – While interest rates can vary among plans, most plans will use the "prime rate" plus one or two percent. The prime rate is the current rate that banks charge to their most creditworthy customers for short-term loans. The current prime rate can be found in most newspapers. Repayment period – In most cases, you will be required to pay back the loan over a five-year period. If a loan is taken out to purchase a residence the repayment period can be for more than five years. Payroll deduction – Almost all plans require repayment through payroll deduction. Based on the length of the prepayment period, a regular monthly payment will be determined and this amount will be deducted from your paycheck. Early repayment – If you wish to repay the loan early, you can generally do so at any time without penalty. Go to next slide
  • Click to reveal each bullet State: In order to understand the potential advantages and downsides of a 401(k) loan, it is important to understand how the loan and its repayment are treated for tax purposes. No taxes or penalties on loan amount – Unlike withdrawals from a 401(k) plan, funds obtained from a loan are not subject to income taxes or the 10% early withdrawal penalty unless you default on the loan. After-tax payments – Unlike normal contributions to a 401(k) plan which are made pre-tax, repayments, including both principal and interest, are made with after-tax dollars. Interest not tax-deductible – The interest you pay will be deductible only to the extent the funds are attributable to employer contributions to a retirement plan and is secured by a mortgage for the purchase of a residence. Repayments taxable as ordinary income upon withdrawal – All repayments into the plan are taxable as ordinary income upon withdrawal. Taxable as distribution upon default – If you default on the loan for any reason, the full outstanding balance of the loan will be considered a distribution. The amount will then be subject to income tax and may also be subject to 10% early withdrawal penalty if you are under age 59½. Go to next slide
  • State: As mentioned previously, all loan payments, including both principal and interest payments, are made after-tax. This, along with the fact that these payments are taxed as ordinary income upon withdrawal, has led some to describe repayments as being “double taxed.” However, this is not really accurate. Click to reveal first bullet – Principal payments State: If you were to take a traditional loan, you would not be taxed on the loan amount, but you would have to pay back the loan with after-tax dollars. Similarly, if you were to cover your expenses from some other source than a loan, such as a savings or brokerage account, you would also be using after-tax dollars. When you take a loan from your 401(k) plan, the funds you receive are not subject to income taxes on the loan amount, and, just like a traditional loan, a 401(k) loan is paid back with after-tax dollars. Principal repayments that you make into the plan simply replace the amount that you borrowed. As such, principal repayments are not taxed twice, they are really only taxed once, when funds are withdrawn from the account. Click to reveal second bullet – Interest payments State: Interest payments are made with after-tax dollars and, unlike principal payments, do not simply replace the pre-tax loan amount. In a way, they are like new contributions to the plan that are made after tax. However, these interest payments are considered pre-tax when funds are withdrawn and are subject to income taxes. Although technically interest payments are taxed twice, the impact of this is relatively minimal. When paying interest on a 401(k) loan, you are, in effect, paying interest to yourself. These interest payments are intended to help make up for the amount of interest income that is lost when funds are taken out of the plan. The amount of after-tax interest that you pay is reinvested into the plan and grows tax-deferred until withdrawn. Go to next slide
  • Click to reveal each bullet State: Potential advantages of loans from your 401(k) include: Convenience – In most cases, getting a loan from your 401(k) is convenient and fast provided you are eligible. There is no credit check or long credit application. This can provide relatively quick and easy access to funds in the case of need. Low rates – The interest rate that you pay on the loan is relatively low, usually one or two percentage points above the prime rate. Interest paid to yourself – Interest payments are paid back into your plan. In effect, you are making interest payments to yourself rather than to a bank or credit card company. Ability to select the source of the funds – You can generally select which investments you would like to liquidate in order to fund the loan. Longer repayment period for home loans – Most plans allow longer repayment periods for loans used to cover mortgage expenses, often 15 years. Simplicity – Most plans will automatically deduct required payments from your paycheck so you do not have to worry about making these payments. Early repayment – You can generally choose to pay back the loan early without penalty. Go to next slide
  • Click to reveal each bullet State: Potential downsides of loans from your 401(k) include: Availability – While plans are allowed to offer loans, they are not required to do so and some small plans may not offer this feature. Opportunity cost – When you take a loan from your 401(k), investments will need to be liquidated. This means that you will lose any investment return on the amount borrowed. While the interest you pay on the loan is intended to help make up for this lost return, the interest rate paid may be less than the rate the investments would have otherwise earned. Temptation to reduce contributions – When you are paying back a loan from your 401(k), it can be easy to forget about the need to continue making normal contributions to the plan. Failure to do so can have a significant impact on your long-term retirement goals. Loan default – If you default on the loan for any reason, the outstanding balance will be considered a distribution and will be taxed as ordinary income and may be subject to the 10% early withdrawal penalty if you are under age 59½. Required repayment if you leave employment – Most plans require loans to be paid back in full within 60 – 90 days of leaving employment. If your job is terminated or you change jobs unexpectedly, this can easily result in a loan default. Fees – Many plans charge an upfront fee at the time of the loan and/or a yearly service fee for the loan. Interest not tax deductible – The interest you pay will be deductible only to the extent the funds are attributable to employer contributions to a retirement plan and is secured by a mortgage for the purchase of a residence. Repayment restrictions – You can generally not change the payment terms of the loan and cannot stop payroll deductions. Spousal consent – If you are married, most plans require the written consent of your spouse before making funds available. State: By far, the biggest risks associated with taking a loan from your 401(k) are the potential consequences of a loan default and the potential impact of a loan on your long-term retirement goals. We will now review each of these risks in greater detail. Go to next slide
  • State: One of the biggest benefits of a 401(k) loan is the avoidance of taxes and penalties on the funds that are borrowed from the plan. However, if you default on the loan, the full outstanding balance will be considered a distribution and will be subject to income taxes and, if you are under age 59½, a 10% early withdrawal penalty. While no one plans on defaulting on a 401(k) loan, if your job is terminated or you need to change employers suddenly, you will generally be required to pay off the outstanding loan balance within 60 – 90 days. If you do not have these funds available or are unable to obtain another loan to cover the balance, you can very easily find yourself in default. Click to reveal table State: As an example, let’s say Sarah, a long-time employee of her firm, unexpectedly has her position terminated as a result of corporate restructuring. Two years ago, Sarah took out a loan from her 401(k). Currently, she still has an outstanding loan balance of $20,000 on the loan. Sarah is unable to find or borrow other assets to cover the loan balance within the 60 days required by her plan and she defaults on the loan. Upon default, the outstanding loan balance is considered a distribution and Sarah must pay income taxes on the full amount. Since she is in the 28% tax bracket, she must pay $5,600 in federal income taxes. Since Sarah is also subject to her state’s income tax of 5%, she must pay an additional $1,000 in state income taxes. Since she is under age 59½ and a qualifying exception does not apply, she is also subject to a 10% early withdrawal penalty of $2,000. As a result of the default, Sarah will need to pay a total of $8,600 in taxes and penalties on the outstanding loan balance. State: In addition to taxes and penalties, Sarah will no longer be able to pay back the loan amount into her 401(k) plan and have these assets grow tax-deferred. So not only can a default be costly in terms of taxes and penalties, it can also seriously harm your ability to achieve your long-term retirement goals. Go to next slide
  • Click to reveal first bullet – Opportunity cost State: When you take a loan from your 401(k) plan, you are, in effect, withdrawing money from your account balance and replacing it with an IOU. Since investments will have to be liquidated, you will lose any return that you would have earned on these investments. While the interest you pay on the IOU helps offset lost return, the interest rate paid is often less than the rate the investments would have otherwise earned. While the extent of this “opportunity cost” will depend on how well liquidated investments perform during the repayment period, even a small difference can add up to a significant difference in your account balance over the long term. Click to reveal second bullet – Choosing the source of funds State: Most plans will allow you to select the investments you wish to liquidate to fund the loan. If this option is available to you, it may be beneficial to liquidate fixed income or money market funds as these funds have lower potential returns than equities. However, you will also need to consider how any changes to the portfolio will affect your overall asset allocation strategy. Click to reveal third bullet – Importance of continuing contributions State: It is also important to remember that the loan repayments are simply designed to replace the funds that you withdrew from the account, they do not take the place of contributions. If you only make loan payments during the repayment period and stop making or decrease your normal contributions, you can seriously harm your ability to achieve your retirement goals. This is particularly true if you do not take full advantage of any employer-matching offered by your plan. On the following slides, we will look at some hypothetical examples of how this opportunity cost can affect long-term returns and how this effect can be minimized by continuing normal contributions during the repayment period. Go to next slide
  • State: Let’s first look at a hypothetical example where a participant does not take a loan and continues normal contributions. Peter is 35 years old and earns $60,000 a year. He plans on retiring at age 65 in approximately 30 years. He has been with his employer for several years and has a current 401(k) balance of $40,000. Peter contributes 6% of his salary, $3,600 annually, to his 401(k). Since his plan includes matching up to 3%, his employer contributes another $1,800 annually on his behalf. Including employer-matching contributions, Peter’s total annual contributions to the plan equal $5,400. Assuming an 8% annual rate of return and continued annual contributions of $5,400, the ending value of the account after thirty years would be approximately $1,040,432. State: Please note that this hypothetical example and the ones on the following slides are intended for illustration purposes only. For example, they assume that the participants salary and contribution level remain the same until retirement. However, these simplified examples can help us see the potential opportunity cost of 401(k) loans and the importance of continuing contributions during the repayment period. Go to next slide
  • State: Now let’s look at what would happen if Peter took a loan and stopped making normal contributions during the repayment period. In order to help cover uninsured medical expenses for his father, Peter takes a $20,000 from his 401(k) plan. He is required to pay off the loan in 5 years at an interest rate of 5% (current prime rate +1%). Assuming that the interest rate remains steady throughout the payment period, the amount he has to pay on his loan annually is approximately $4,529. Peter is concerned about the amount of money deducted from his paycheck and decides to stop making new contributions to the plan until the loan repayment period is over. After he has repaid the loan in full, Peter begins making total annual contributions (including employer-matching) of $5,400 for the remaining 25 years. Assuming an 8% annual rate of return, the ending value of the account would be $802,688 after 30 years. The combined effect of the loan and the failure to continue contributions during the repayment period on long-term investment returns can be clearly seen when we compare this to the scenario on the previous slide. The ending balance after 30 years is $237,744 less than if Peter had not taken a loan and continued to make contributions ($1,040,432 – $802,688). Obviously, this difference will have quite an impact on Peter’s ability to realize his retirement goals. Go to next slide
  • State: Now let’s assume that Peter decided to continue making his annual contribution of $5,400 during the loan repayment period. Once again assuming an annual rate of return of 8%, the ending value of the account after 30 years would be approximately $1,028,936. This is only $11,497 less than ending balance ($1,040,432) in the scenario in which Peter did not take a loan and continued making normal contributions. While this difference is still noticeable, it is much less likely to affect Peter’s retirement plan than if he had not continued contributions during the repayment period. Go to next slide
  • State: Now let’s compare all three scenarios to get a better picture of a how a loan can affect your retirement goals. As you can see from this example, failing to continue making contributions during the loan repayment period can seriously harm long-term returns. However, if full contributions are continued during the loan repayment period the impact is significantly lessened. Go to next slide
  • Click to reveal each bullet State: When determining if a 401(k) loan is appropriate for you, you will need to consider a variety of factors, including: How great is your need for the loan? – Because of the potential impact on your retirement plan, you should generally only take a loan from your 401(k) when there is a real need, such as medical or mortgage expenses. 401(k) loans should generally not be used to cover a non-essential purchase or to pay for a vacation. Can you obtain the needed funds from other sources? – Before taking a loan from your 401(k), you should carefully consider whether you are able to obtain funds from another source. If other loans are available, you will need to consider the costs of the loan relative to the loss of potential investment return on your 401(k) assets. Are you planning to leave your job or retire within the next few years? – If you expect to leave your job or retire in the near future, a 401(k) loan is likely inadvisable as you will need to pay the loan balance back in full within 60 – 90 days of leaving employment. If you are unable to do so, you will default on the loan. Is there a chance you will lose your job due to a company restructuring? – If there is a chance that your position may be terminated for any reason, you should not take a loan from your 401(k) unless you expect to be able to pay back any remaining loan balance in full within the required time. Will you be able to continue to make regular contributions to your plan? – As we have seen, continuing to make contributions during the repayment period can greatly limit the negative impact of a loan on your long-term returns. For this reason, you should only take a loan from your 401(k) plan if you expect to be able to continue making contributions to the plan during the repayment period. Go to next slide
  • Discuss specific ways that you bring together the firm’s resources and expertise to help investors achieve their goals. You can discuss here: Examples of specific resources within the firm that you leverage Your communications approach You can highlight aspects of your biography and experience that underscore how you work with your clients and how you are committed to helping your clients achieve their goals. State: It was a pleasure to be here with you today. Thank you for your time and attention. I will be here for a while and am happy to answer any questions you may have.
  • Borrowing From Your 401(K) Plan

    1. 1. Borrowing from Your 401(k) Plan Investments and services offered through Morgan Stanley Smith Barney LLC, and accounts carried by Morgan Stanley & Co. Incorporated; members SIPC. © 2009 Morgan Stanley Smith Barney Tom Kokjohn, CFP Financial Advisor GP08-04379P-N12/08 – July 2009 [Expiration Date]
    2. 2. Why Are We Here Today? <ul><li>Review how a loan from a 401(k) works </li></ul><ul><li>Examine the potential advantages and downsides of a loan from a 401(k) </li></ul><ul><li>Discuss factors that you will need to consider before deciding to take a loan from your 401(k) plan </li></ul>
    3. 3. Why Borrow from a 401(k)? <ul><li>Individuals borrow from their 401(k) plan when there is a real need and when other sources of funds are not readily available or are too costly. </li></ul><ul><li>They also borrow from their plan to: </li></ul><ul><ul><li>Pay for college tuition </li></ul></ul><ul><ul><li>Cover uninsured medical expenses </li></ul></ul><ul><ul><li>Fund the purchase of a primary residence </li></ul></ul><ul><ul><li>Prevent being evicted or defaulting on a mortgage </li></ul></ul>
    4. 4. What Is a 401(k) Loan? Principal & interest payments Loan amount 401(k) Plan 401(k) Loan Loan amount Principal & interest payments Traditional Loan Bank or other creditor
    5. 5. How Much Can I Borrow? <ul><li>Minimum account balance </li></ul><ul><li>Minimum loan amount </li></ul><ul><li>Maximum loan amount, greater of: </li></ul><ul><ul><ul><ul><li>100% of vested balance up to $10,000 </li></ul></ul></ul></ul><ul><ul><ul><ul><li>50% of vested balance up to $50,000 </li></ul></ul></ul></ul><ul><li>Adjustment for multiple loans </li></ul><ul><ul><li>Maximum loan amount less the highest outstanding loan balance within the preceding 12 months </li></ul></ul>Account Balance Maximum Loan $0 – to Minimum Balance $0 Minimum Balance – $19,999 100% of Account Balance up to $10,000 $20,000 – $100,000 50% of Account Balance Over $100,000 $50,000
    6. 6. How Much Can I Borrow? – Example Vested Balance Highest Loan Balance in Past 12 months Maximum Loan Amount $60,000 $0 $30,000 Vested Balance Highest Loan Balance in Past 12 months Maximum Loan Amount $50,000 $9,000 $16,000
    7. 7. Terms of the Loan <ul><li>Fees </li></ul><ul><li>Interest rate </li></ul><ul><li>Repayment period </li></ul><ul><li>Payroll deduction </li></ul><ul><li>Early repayment </li></ul>
    8. 8. Tax Treatment <ul><li>No taxes or penalties on loan amount </li></ul><ul><li>After-tax payments </li></ul><ul><li>Interest not tax-deductible </li></ul><ul><li>Repayments taxable as ordinary income upon withdrawal </li></ul><ul><li>Taxable as distribution upon default </li></ul>
    9. 9. Tax Treatment – After-Tax Payments <ul><li>Principal payments </li></ul><ul><li>Interest payments </li></ul>
    10. 10. Advantages <ul><li>Convenience </li></ul><ul><li>Low rates </li></ul><ul><li>Interest paid to yourself </li></ul><ul><li>Ability to select source of funds </li></ul><ul><li>Longer repayment period for home loans </li></ul><ul><li>Simplicity </li></ul><ul><li>Early repayment </li></ul>
    11. 11. Downsides <ul><li>Availability </li></ul><ul><li>Opportunity cost </li></ul><ul><li>Temptation to reduce contributions </li></ul><ul><li>Loan default </li></ul><ul><li>Required repayment if you leave employment </li></ul><ul><li>Fees </li></ul><ul><li>Interest not tax deductible </li></ul><ul><li>Repayment restrictions </li></ul><ul><li>Spousal consent </li></ul>
    12. 12. What Happens if I Default? Default on Outstanding Loan Balance of $20,000 Federal income tax (28%) $5,600 State income tax (5%) $1,000 10% early withdrawal penalty $2,000 Total Taxes and Penalties $8,600
    13. 13. Impact on Retirement Goals <ul><li>Opportunity cost </li></ul><ul><li>Choosing the source of funds </li></ul><ul><li>Importance of continuing contributions </li></ul>
    14. 14. Example – No Loan with Continued Contributions Hypothetical example Assumes 8% annual rate of return Starting Balance $40,000 Annual Contributions $5,400 Ending Balance after 30 Years $1,040,432
    15. 15. Example – Loan with No Contributions during Repayment Hypothetical example Assumes 8% annual rate of return Starting Balance $40,000 Loan Amount $20,000 Annual Loan Payments (5 Years) $4,529 Annual Contributions during Repayment Period $0 Annual Contributions after Repayment Period $5,400 Ending Balance after 30 Years $802,688
    16. 16. Example – Loan with Continued Contributions during Repayment Hypothetical example Assumes 8% annual rate of return Starting Balance $40,000 Loan Amount $20,000 Annual Loan Payments (5 Years) $4,529 Annual Contributions during Repayment Period $5,400 Annual Contributions after Repayment Period $5,400 Ending Balance after 30 Years $1,028,936
    17. 17. Example – Comparison 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 Years No loan with continued contributions Loan with no contributions during repayment Loan with full contributions during repayment $1,040,432 $802,688 $1,028,936 Hypothetical example Assumes 8% annual rate of return $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 Account Balance
    18. 18. Should I Borrow from My 401(k) Plan? <ul><li>How important is your need for the loan? </li></ul><ul><li>Can you obtain the needed funds from other sources? </li></ul><ul><li>Are you planning to leave your job within the next few years? </li></ul><ul><li>Is there a chance you will lose your job due to a company restructuring? </li></ul><ul><li>Will you be able to continue to make regular contributions to your plan? </li></ul>
    19. 19. Your Financial Advisor Team at Morgan Stanley Smith Barney <ul><li>Our Financial Advisors can provide: </li></ul><ul><li>Access to intellectual strength and global resources of Morgan Stanley Smith Barney </li></ul><ul><li>Financial solutions that address your specific needs and goals </li></ul>Tom Kokjohn, CFP Financial Advisor <ul><li>858-618-7930 </li></ul><ul><li>[email_address] </li></ul>Morgan Stanley Smith Barney, Morgan Stanley & Co. Incorporated and Morgan Stanley Smith Barney’s Financial Advisors do not provide tax or legal advice, are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein, and this material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are urged to consult their tax or legal advisor before establishing a retirement plan or to understand the tax, ERISA and related consequences of any investments made under such plan.

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