SIMPLE IRA. Savings Incentive Match Plan for Employees

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1 SIMPLE IRA Savings Incentive Match Plan for Employees

2 Introducing the SIMPLE IRA Plan A comfortable retirement is an important financial goal for many American workers. Some financial professionals estimate that you ll need between 70 and 80 percent of your current gross annual income to maintain your present lifestyle. In addition, Americans are living longer lives. This means that you may need to support your household for 20 or more years after you retire. Achieving your retirement goal requires careful planning and systematic savings. Recognizing this important need to save, your employer has established the Morgan Stanley SIMPLE IRA Plan. Combined with Social Security and personal savings, a SIMPLE IRA Plan could be a meaningful source of retirement income. SIMPLE IRA Saves on Taxes Today Your SIMPLE IRA contribution reduces your current Federal income taxes. Similar to the popular 401(k) plan, the SIMPLE IRA allows you to make annual pretax contributions.* When you contribute a portion of your salary to a SIMPLE IRA Plan, you reduce your taxable income by the amount of your contribution. For example, if your annual salary is $30,000 and you contribute $3,000 to your employer s SIMPLE IRA Plan, your reportable, taxable income is reduced to $27,000. You ll immediately save on income tax. Also, your employer is generally required to make a matching contribution equal to your own pretax contribution or up to 3% of your compensation, whichever is less. The amount of your employer s contribution is not included in your current income. * Your pretax contributions cannot exceed $11,500 for If you are age 50 or older you may make additional contributions of $2,500 for 2012.

3 Ongoing Tax Savings In addition to the significant income tax savings you ll enjoy from your contribution, you ll also benefit from tax-deferred earnings potential. No taxes are paid on any investment earnings or gains while funds remain in a SIMPLE IRA. Over time, tax deferral could potentially increase the value of your account. The chart below illustrates the SIMPLE IRA advantage. This illustration is based upon an individual with $30,000 of compensation who defers $3,000 into the SIMPLE IRA. This example compares the growth of annual $3,000 pretax SIMPLE IRA contributions with the growth of $3,000 per year investments that are first taxed before you receive them and then placed in an after-tax savings account. It also assumes the employer makes a 3% SIMPLE IRA matching contribution of $900 at the end of each plan year. Years Employee Contributions 15% Tax Bracket SIMPLE IRA Employer Contributions SIMPLE Account After-tax Account 5 $17,895 $5,175 $23,070 $14, $43,270 $12,435 $55,705 $34, $79,240 $22,615 $101,855 $62, $52,390 $36,895 $167,125 $97, $81,470 $58,740 $259,435 $146, $122,700 $84,980 $390,000 $211,425 This example is for illustrative purposes only and does not represent any specific investment; your actual results may vary. The chart assumes a 7% annual rate of return, 15% Federal income tax bracket, $250 pretax monthly salary reduction, $ after-tax contribution, a 5.95% effective after-tax return and an employer matching contribution of $900 made in a single contribution at the end of each year.

4 Years Employee Contributions 28% Tax Bracket SIMPLE IRA Employer Contributions SIMPLE Account After-tax Account 5 $17,895 $5,175 $23,070 $12, $43,270 $12,435 $55,705 $28, $79,240 $22,615 $101,855 $48, $130,230 $36,895 $167,125 $74, $202,515 $58,920 $259,435 $107, $304,990 $85,010 $390,000 $150,915 This example is for illustrative purposes only and does not represent any specific investment; your actual results may vary. The chart assumes a 7% annual rate of return, 28% Federal income tax bracket, $250 pretax monthly salary reduction contribution, $180 after-tax contribution, a 5.04% effective after-tax return and an employer matching contribution of $900 made in a single contribution at the end of each year. As you can see, the earlier you begin to participate in a SIMPLE IRA, the longer your contributions can grow on a tax-deferred basis and the greater the potential benefits you may receive. Of course, funds from your SIMPLE IRA account will be taxed as ordinary income when you take withdrawals. Distributions taken before age may also be subject to a 10% premature distribution tax penalty. It is important to note that the premature distribution tax rate is increased to 25% for any premature distribution you receive during the two-year period beginning on the date you first participated in the Plan.

5 Answers to Commonly Asked Questions About the SIMPLE IRA Retirement Plan How will I know if I am eligible to participate in my employer s SIMPLE IRA Retirement Plan? You are eligible to contribute during a year if you received at least $5,000 in any two prior years of employment with your employer and your employer expects you to receive at least $5,000 during the current year. Your employer will give you a written reminder of your eligibility before the start of each year. How do I join the Morgan Stanley SIMPLE IRA Plan? Your employer will give you a Notice to Employees, Salary Reduction Agreement, Plan Summary, and a Morgan Stanley SIMPLE IRA Kit (which includes the new account Adoption Agreement, SIMPLE IRA Document and Disclosure Statements). Your salary reduction contributions and employer SIMPLE IRA contributions will be made to your Morgan Stanley SIMPLE IRA account. How much may I contribute under the SIMPLE IRA Retirement Plan? You may make pretax contributions of up to 100% of your annual compensation but not more than $11,500 for 2012 ($14,000 if age 50 or older). The annual contribution limit is subject to cost of living adjustments. Are my pretax contributions subject to Federal Social Security ( FICA ) and Federal Unemployment ( FUTA ) taxes? Yes, although your pretax SIMPLE IRA contributions are free from current Federal income taxes, they are subject to withholding taxes for Social Security, Medicare and unemployment insurance (FICA and FUTA). Participation in a SIMPLE IRA will not reduce your Social Security benefits. Is my employer required to make SIMPLE IRA contributions? If you make SIMPLE IRA contributions, your employer must also make an annual SIMPLE IRA contribution on your behalf. Not later than November 2, your employer will notify you of the employer contribution formula that will be effective for the calendar year beginning January 1.

6 When am I vested in the Morgan Stanley SIMPLE IRA Plan? You are 100% vested in all contributions you and your employer make at all times. How does a SIMPLE IRA Plan operate? Your SIMPLE IRA Plan uses payroll deductions and is set up through an IRA. Your contribution will be deducted from your paychecks, without any reduction for income tax. Each month your employer deposits your SIMPLE IRA contributions into your SIMPLE IRA. Once deposited, you choose the IRA investments that are right for you. Morgan Stanley s SIMPLE IRA allows you to select from a wide range of investments. Plus, a Morgan Stanley Financial Advisor or Private Wealth Advisor can help you choose which investments are appropriate for your needs and goals. How often will I receive information about my Morgan Stanley SIMPLE IRA account? You will automatically receive quarterly account statements. You will also receive a monthly statement whenever there is account activity, or a contribution is made to your account. What are my distribution options and how are they taxed? While SIMPLE IRA contributions are meant for retirement, you may take distributions at any time, subject to ordinary income tax. If you are under age 59 1 /2, a 10% premature distribution tax penalty may also be imposed. However, the premature distribution tax penalty is increased to 25% for any premature distribution you receive during the two-year period beginning on the date you first participated in the Plan. Am I still eligible to contribute to my IRA? Yes, you may still make annual contributions to a Traditional (provided you are under age 70 1 /2 and are otherwise eligible) or a Roth IRA (provided you are eligible). Also, you may make contributions to the IRA of a non-wage-earning spouse. However, such contributions may not be deductible if certain adjusted gross income levels are exceeded. Please note that you may not make annual IRA contributions to your SIMPLE IRA account but must use a separate IRA. Your tax advisor can provide you with specific details.

7 Get Started Now Tell your employer that you d like to enroll in the Morgan Stanley SIMPLE IRA Plan as soon as possible. If you have questions, your Morgan Stanley Financial Advisor or Private Wealth Advisor is available to help explain the Plan to you in greater detail, as well as discuss your specific retirement investment needs and goals. Remember, Morgan Stanley Financial Advisors or Private Wealth Advisors do not provide tax advice. Please consult your own tax advisor before making any tax-related investment decisions.

8 Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC ( Morgan Stanley ), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not fiduciaries (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise agreed to in writing by Morgan Stanley. 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 encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account Morgan Stanley Smith Barney LLC. Member SIPC. NY CS /12 KP PS-2567

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