Roth IRAs. Planning for Contributions, Conversions and Growth

Transcription

1 Roth IRAs Planning for Contributions, Conversions and Growth

2 Traditional Individual Retirement Accounts (IRAs) are among the most widely utilized retirement vehicles available today. They are ideally suited to individuals who wish to invest assets during their earning years, deferring the payment of income taxes until withdrawals from the account take place, typically during retirement. The Roth IRA, first introduced in 1998, is now increasingly gaining traction. Roth IRAs differ from traditional IRAs in that contributions are not tax deductible, yet qualified distributions are tax free. In general, most individuals seek to defer the payment of taxes in anticipation of being in a lower tax bracket and enjoying a lower tax rate in the future. The Roth IRA turns this rule of thumb on its head and instead provides future tax-free benefits for tax payments made in the present. The extension of the Bush-era tax rates by the December 2010 Tax Act extended the favorable timing for conversions from traditional retirement plans to Roth IRAs. Who Might Benefit from a Roth IRA? If an individual expects to pay income taxes at higher rates in retirement, he or she may benefit from present contributions or a conversion to a Roth IRA. This could be because the individual anticipates having more taxable income in later years and/or because the individual believes tax rates will increase in the future. Roth IRAs are most beneficial if a long time horizon until withdrawal is anticipated. Roths also offer many additional advantages, such as simplifying estate planning and avoiding the nuisance of annual required minimum distributions. However, converting a traditional IRA or other retirement plan to a Roth IRA is not appropriate in all situations. The decision as to when and if to convert is an individual one which merits input from one s tax advisor. 1

3 Who Can Contribute to a Roth IRA? Unfortunately, many people who would benefit from having a Roth IRA have been unable to take advantage of one. Wealthy retirees without earned income cannot contribute to any IRA, traditional or Roth. Conversely, the income ceilings have virtually shut out most more affluent wage earners. In 2013, if an individual s Modified Adjusted Gross Income (MAGI) is above certain levels he or she cannot open or contribute to a Roth IRA. These income caps are graduated with complete phase out at $127,000 for singles, $188,000 for married couples filing jointly and a mere $10,000 for those who are married and choose to file separately. While no relief is in sight for direct contributions to a Roth IRA for either the retirees or upper income earners, as of January 1, 2010, a new back door for moving funds into a Roth IRA opened. What Changed? The Tax Increase Prevention and Reconciliation Act (TIPRA) of 2006 eliminated the ceiling for conversions from traditional IRAs to Roth IRAs, beginning in Previously, only taxpayers with MAGI under $100,000 could convert a traditional IRA to a Roth IRA. This income limitation was applied to those married and filing jointly as well as single filers; married taxpayers who file separately were essentially barred from converting. Most middle class and wealthy individuals found they could not convert. However, this income ceiling was removed as of January Anyone, regardless of income level, is now able to convert his or her traditional IRA to a Roth IRA, opening the door for high-income earners and wealthy retirees with large IRAs and certain types of retirement plans. When one converts from a traditional to a Roth IRA, the converted amount is included in the individual s (or couple s) taxable income for the year in which the conversion occurs. Those electing to convert in 2010 had the option of excluding the income from the conversion on their 2010 returns and instead splitting the converted amount into equal parts and including it as income in 2011 and However, this was a one-year window; after 2010 all converted amounts must be included in income in the year of conversion. As with all aspects of Roth conversions, the decision regarding when and how much to convert must be analyzed on an individual basis. Tax rates in effect in any given year are a factor, but a taxpayer s personal circumstances are equally as important. For instance, for someone expecting to avoid AMT in 2013 but to be subject to AMT in 2014, converting in 2014 may be advisable, as a way to pay the lower 28% AMT rate on the converted funds. 2

4 Distributions the Devil is in the Details Before jumping into a conversion, it is important to review the procedures for getting money out of a Roth IRA. The details are complex, with different rules for penalties and taxes depending on how funds are moved into the Roth, the investor s age and other criteria. It also should be noted that those converting to a Roth IRA after they have reached the age of 70½ need to take their Required Minimum Distributions (RMDs) before converting. A conversion does not eliminate the need to take the RMD in the year of conversion. A much acclaimed advantage of Roth IRAs is the tax-free, penalty-free withdrawal of contributions at any time. However, this applies only to amounts contributed directly to a Roth IRA, not to funds converted from a traditional IRA. A key restriction on converted funds prevents an end run around the age restrictions on penalty-free withdrawals from a traditional IRA by converting to a Roth. Distributions of converted funds to a beneficiary who is under 59½ are subject to a 10% penalty unless the funds have been held in the Roth for five years or satisfy one of the exceptions for early withdrawals from traditional IRAs. This five-year holding requirement is even more stringent than that imposed on Roth earnings. Each Exhibit A Ordering Rules, Penalties and Tax Consequences on Roth IRA Distributions Made before Five Years from Contribution/ Conversion to Roth IRA Note: all Roth IRA accounts are aggregated for determining ordering Source of Roth IRA Funds (order of distribution) Penalty conversion contribution starts a separate five-year clock ticking, with the five-year periods ending on the last day of the fifth tax year following withdrawal from the traditional IRA. Exhibit A summarizes these rules. Earnings in Roth IRAs also are subject to restrictions. Interest, dividend and other income, as well as capital gains, are all classified as earnings. Regardless of whether these earnings were generated by funds contributed directly to a Roth IRA or amounts converted from a traditional IRA, they must meet the definition of a qualified distribution or be part of a series of substantially equal periodic payments (same definition as for traditional IRA) to avoid being subject to a 10% withdrawal penalty and taxed as ordinary income. To satisfy the qualified distribution requirement, distributions of earnings must be made no sooner than five years from the date any funds were contributed to a Roth IRA. Additionally, distributions must satisfy one of the four following criteria. They must be: made after the investor reaches age 59½ made after the investor s death made after the investor s disability used to pay qualified first-time homebuyer expenses Income Tax Regular Roth IRA contributions none none Converted pre-tax contributions 10%* none Converted after-tax contributions none none Earnings 10%** ordinary income tax** *This penalty only applies for under age 59½ within 5-year period or if no other exception applies **10% penalty and included as ordinary income unless five-year holding period is satisfied and one of the other conditions for qualified distribution is met 3

5 Roth Ordering Rules When someone has a mixture of direct contributions, converted monies and earnings in Roth IRAs, and takes a withdrawal, which funds are deemed to be distributed first? This is specifically spelled out in strict ordering rules. First, although the individual may choose to take money out of one particular Roth IRA account, from a tax and penalty perspective all Roth IRAs must be aggregated to determine the order of distributions. Exhibit B illustrates these complex ordering rules. Who Should Consider Converting to a Roth IRA? Generally, individuals who are currently taxed at a lower rate than they expect to be when they withdraw from their IRA may benefit from converting from a traditional to a Roth IRA. The former rule of thumb for maintaining maximum amounts in tax deferred accounts such as traditional IRAs counted on having less income and therefore a lower tax rate after retirement. For people who expect income tax rates to go up in the future this scenario is less likely now than it was in past decades. Exhibit B Ordering Rules of Roth IRA Distributions 10% penalty applies if under age 59½ and no exception applies First Regular and Spousal Contributions (Basis) Nontaxable and no 10% penalty Second Converted Pre-Tax Contributions Nontaxable No 10% penalty if at least age 59½ or an exception applies Third Converted After-Tax Contributions Nontaxable and no 10% penalty Fourth Earnings (Earnings are considered distributed only after regular and spousal contributions and then conversion contributions are depleted) Qualified (Nontaxable and no 10% penalty) 10% penalty applies if under age 59½ and no exception applies After five-year period (No 10% penalty) Nonqualified (Taxable) No 10% penalty if at least age 59½ or an exception applies These rules apply as of the end of the taxable year after all contributions, and after recharacterizations have been completed. Each category must be exhausted before moving to the next. This chart does not apply to corrective distributions (e.g., removing excess contributions). Several other factors also may favor conversion now. 4

6 Reasons to Consider Conversion to a Roth IRA If non-deductible contributions (basis) represent a large portion of the traditional IRA balance The tax burden upon conversion is only for the balance attributable to deductible contributions. Partial conversions, however, apply basis in proportion to the total IRA value. So an individual cannot convert only assets with basis and expect to have no tax liability. Planning Tip: Depending on how many of the advantages of conversion apply to an individual situation, if the individual s income precludes contributing to a Roth IRA directly, he or she may find it advantageous to make after-tax contributions to a traditional IRA, then convert this to a Roth IRA. To avoid the administrative burden of required minimum distributions (RMDs) This benefit also applies to a surviving spouse who inherits a Roth IRA and elects to roll it over to his or her own Roth IRA. This benefit does not, however, inure to non-spouse beneficiaries. As with traditional IRAs, designated beneficiaries other than spouses must withdraw from their inherited Roth IRA within five years or at least as quickly as the single life table requires, starting in the year following the original IRA owner s death. Additionally, if non-spouse heirs die before depleting a Roth IRA, their beneficiaries must continue or accelerate the withdrawal schedule of the deceased non-spouse beneficiary, without any further stretch-out. (Note, however, that Roth beneficiaries pay no tax or penalty on their withdrawals.) Estate planning reasons If an individual plans to use an IRA to fund an exemption (credit shelter) trust. A Roth IRA is a much better asset for funding family trusts than traditional IRAs, as funds from the Roth IRA flow into the trust without an associated income tax liability. This is especially powerful when the trusts accumulate rather than distribute income. Accumulation trusts retain the income tax liability flowing from distributions from a traditional IRA, rather than passing it out to the trust beneficiaries who would likely have paid less taxes than the trust. If paying income taxes on the converted amount will reduce an ultimate estate tax liability (reducing an estate by the amount of income taxes paid). If an individual would like to leave beneficiaries an income-tax-free, penalty-free asset (possibly subject to estate taxes). Leaving a Roth IRA to grandchildren may make even better use of the tax-free stretch-out, provided the grandparent has a sufficient generation skipping tax exemption to allocate to the Roth. If a long time horizon is anticipated before withdrawing these funds This could be due to the owner s age and/or cash flow needs. This allows many years of compounding the tax-free growth. 5

7 Reasons to Consider Maintaining a Traditional IRA If the IRA owner lacks funds to pay income taxes on converted amounts from sources outside the IRA Funds withdrawn from an IRA to pay income taxes are not rolled over and therefore defeat the purpose of transforming tax-deferred assets into a growing tax-free nest egg. Furthermore, the monies withdrawn for taxes incur income tax liability themselves, creating a circular calculation. These funds may also be exposed to a 10% early withdrawal penalty. If the owner expects the income tax rates incurred personally and/or by beneficiaries will be lower when the funds are withdrawn than in the year of conversion If a significant portion of the IRA is to be left to charity Since charities do not incur ordinary income taxes, the embedded income tax liability of a traditional IRA is irrelevant to a charitable beneficiary If, by creating additional income during the year(s) of conversion, the IRA owner s higher AGI will cause one of the following: Additional phase out of itemized deductions Additional taxation of social security income and/or increased Medicare Part B premiums Reduction or limitation of AGI-based tax credits (e.g., lifetime learning credit) Exhibit C Case 1: Convert Roth IRA IRA Taxable Account Total Convert and Pay 35% $50,000 $17,500 Roth IRA $50,000 ($17,500) Future Value in 20 Years (after taxes) $193,000 $0 $193,000 As seen in Exhibit C, if this individual in Case 1 converted to a Roth IRA and paid these taxes from the taxable account, assuming a 7% annual return within the IRA, the estimated account value at retirement would be approximately $193,000. Had the individual not converted, as seen in Exhibit D (Case 2), the traditional IRA would also be worth $193,000. However, this amount would be subject to a 35% tax, reducing its net value to about $125, But what about the $17,500 taxable account consumed by taxes in Case 1? In Case 2, assume the $17,500 taxable account was invested in a diversified portfolio returning a taxable 7% per year. Assuming half of the return received a tax rate of 15% (qualified dividends and long-term capital gains) and the other half was taxed at 35%, the blended income tax rate would be 25% and the annual after-tax rate of return would be 5.25%. The invested $17,500 would grow to approximately $49,000 at retirement. The total after-tax assets in Case 2 would be $174,000, about $19,000 less than Case 1. In fact, based on the above example, for someone in a 35% tax bracket, his or her rate would have to drop to about 25% during retirement for conversion to have a negative impact. Exhibit D Case 2: Maintain Traditional IRA IRA Taxable Account Total Beginning Value $50,000 $17,500 Convert and Pay 35% $193,000 Roth IRA ($68,000) Future Value in 20 Years (after taxes) $125,000 $49,000 $174,000 1 Assume married taxpayer with taxable income between $398,250-$450,000 (including value of IRA at conversion), who is not subject to the 3.8% surtax on net investment income as defined by the Patient Protection and Affordable Care Act of

8 Second Bite at the Apple: Recharacterization What if, despite careful planning, an individual encounters unexpected changes in circumstances and, after converting, regrets this decision? Fortunately, the IRS provides an escape clause. All or a portion of the recently converted Roth assets can be recharacterized back to a traditional IRA by a trustee-to-trustee transfer (not a rollover). As long as the recharacterization occurs by the extended due date of the tax return for the year of conversion (usually October 15), an amended income tax return can be filed and refund for the tax paid on conversion can be made. The IRS even allows the recharacterized funds in the traditional IRA to be reconverted back to a Roth IRA after a specified waiting period (the later of 30 days or the calendar year following conversion). However, the IRS seeks to deter converting and recharacterizing assets with each turn of the market; therefore, assume this process can be done only once per calendar year. Recharacterization may be useful in the following situations: 1. If Market Values Decline If an individual is a victim of market risk and his or her value of assets falls in the months following the conversion to a Roth IRA, he/she will have paid income tax on assets that have decreased in value. Solution: recharacterize before October 15 of the year following conversion, file an amended tax return and recoup the taxes on the conversion. 2. If Investment Performance within the IRA Varies When contemplating a Roth conversion the owner should consider the possibility that the values of some assets, sectors and/or asset classes may decline in the near future. Depending on investment performance, it might make sense to later recharacterize some, but not all, of the assets converted. Since recharacterizations must include income earned on the converted funds, one could convert a traditional IRA into separate IRAs by asset, asset class or sector. Having multiple Roth IRAs will likely enable a cleaner recharacterization process, provide more flexibility in timing recharacterizations, and potentially provide tax savings. Planning Tip: Retain the separate asset or asset class Roth IRAs only until the deadline for recharacterization has passed. Then combine these into one Roth. Keeping separate Roth IRAs for converted Roth funds and those funds that were contributed directly to a Roth may also make sense, but probably only until the converted funds satisfy the holding and other requirements for qualified distributions. In Exhibit E we look at two cases, one where all assets are converted to a single Roth IRA and the second case where assets are split into four separate IRAs based on asset class. Due to poor performance in some asset classes, later that year the taxpayer does a partial recharacterization. In Case 2 where assets are segregated during conversion, the taxpayer is able to receive the full tax benefit of the loss in value of assets subsequent to conversion. Conversely, in Case 1, where assets are not segregated, losses are mitigated by gains. The taxpayer is only able to receive a benefit on any net portfolio losses. This is illustrated in Exhibit E, where a taxpayer converts a portfolio with four asset classes. The asset segregation strategy results in a tax savings of approximately $138,000. 7

9 Exhibit E Benefit of Segregation by Asset Class Single IRA vs. Separate IRAs by Asset Class 2 Timeline Status Case 1 Assets Converted to Single IRA Case 2 Assets Split into Separate IRAs on Conversion Hedge Funds $500,000 Hedge Funds $500,000 January 1, 2011 Value of assets immediately before conversion is $2,600,000 Real Assets $100,000 Fixed Income $1,000,000 Real Assets $100,000 Fixed Income $1,000,000 Equity $1,000,000 Total = $2,600,000 Equity Total = $2,600,000 $1,000,000 January 1, 2011 Conversion Conversion of $2,600,000 into a single IRA Conversion of $2,600,000 into separate IRAs December 1, 2011 Total market value decreased to $2,360,000 after conversion Hedge Funds $625,000 Real Assets $85,000 Equity $600,000 Fixed Income $1,050,000 Total = $2,360,000 Hedge Funds $625,000 Real Assets $85,000 Equity $600,000 Fixed Income $1,050,000 Total = $2,360,000 December 1, 2011 Recharacterization of Real Assets and Equity Value Recharacterized $685,000 Value Recharacterized $685,000 Traditional IRA Real Assets $85,000 Real Assets $85,000 Equity $600,000 Assets recharacterized = $685,000 Equity $600,000 Total = $685,000 + Total = $685,000 December 2, 2011 Roth IRA Hedge Funds $625,000 Fixed Income $1,050,000 Hedge Funds $625,000 Fixed Income $1,050,000 Assets not recharacterized = $1,675,000 Total = $1,675,000 + Total = $1,675,000 December 2, 2011 Total Traditional and Roth IRA = $2,360,000 April 15, 2012 Tax Savings Recharacterization reduces income tax by $302,000 Recharacterization reduces income tax by $440,000 Savings of $138,000 by splitting into separate asset classes 2 Assume married taxpayer with taxable income between $398,250-$450,000 (including value of IRA at conversion), who is not subject to the 3.8% surtax on net investment income as defined by the Patient Protection and Affordable Care Act of

10 Roth Accounts in Retirement Plans Roth 401(k)s Some employers now are offering salary deferral contributions to a Roth 401k on an after-tax basis. Technically, these are called Designated Roth Accounts (DRAs). As in a Roth IRA, qualified distributions are penalty free and tax free. However, Roth IRAs and Roth 401(k)s are different in a few important ways: Roth 401(k) accounts are subject to RMDs beginning when the owner reaches 70½ and is no longer working. The five-year clock for determining if a distribution is qualified is calculated separately for each 401(k) DRA, rather than deemed to begin from the date of the first contribution to any Roth 401(k). Non-qualified distributions from a Roth 401(k) do not follow the same ordering rules as previously discussed for Roth IRAs. Instead, they include a proportionate amount of basis and earnings. Converting Assets in 401(k) and 403(b) Plans to Roth 401(k) and 403(b) Accounts The Small Business Jobs Act, which was signed into law on September 27, 2010, provided the opportunity for some participants in 401(k) and 403(b) plans to convert to Roth 401(k) or 403(b) accounts within their plans. Note that the only assets that can be rolled over to Roth 401(k) or Roth 403(b) accounts are amounts from an existing 401(k) or 403(b) account. Prior to 2013 employees wishing to make an in-plan conversion had to be eligible to take distributions from their traditional 401(k) and 403(b) accounts. This effectively limited this option to employees who were over age 59 ½ and/or leaving their companies. The American Taxpayer Relief Act (ATRA) of 2012 eliminated this restriction, opening the door for younger employees to convert their traditional 401(k) and 403(b) accounts to their respective Roth qualified plans early in their careers while still in relatively low tax brackets. However, there are still a number of restrictions on such conversions apply: The employer s plan must offer Roth 401(k) or Roth 403(b) accounts and must permit rollovers to these accounts. Not all employers provide for this. Hardship distributions and Required Minimum Distributions cannot be converted to Roth accounts Unlike conversions to Roth IRAs, funds converted to Roth 401(k) s and Roth 403(b)s cannot be recharacterized Planning Tip: Avoid the RMD on a 401(k) by rolling it over to a Roth IRA. However, if this is done in a year when RMDs are required, the RMD should be taken prior to converting. 9

11 On a positive note, in late 2010, the IRS clarified that in-plan rollovers to Roth accounts are not subject to the 20% withholding that is usually mandatory for withdrawals from qualified retirement plans. Converting Assets in 401(k) and 403(b) Plans to Roth IRAs Prior to 2008, only various forms of IRAs were eligible for conversion to a Roth IRA. These included traditional, rollover, SEP and SIMPLE IRAs. The pool was broadened in 2008 to include qualified retirement plans such as pension plans, profit-sharing plans, stock bonus plans, 401(k)s, 403(b)s and 457s. These conversions are subject to the same rules previously discussed for converting a traditional IRA, with two additional restrictions specific to each employer s plan: the plan participant must be eligible to take a distribution the participant s funds must be eligible for rollover Additionally, beneficiaries of inherited 401(k) DRAs may now roll them directly into inherited Roth IRAs. For most people, converting a traditional 401(k) to a Roth IRA is a better alternative than converting a traditional 401(k) to a Roth 401(k). The Roth IRA provides the opportunity to recharacterize, is not subject to Required Minimum Distributions, and generally offers more flexible options for investment and beneficiary designations. Planning Tips: If an employee s company plan includes a large proportion of low-basis company stock, it may be better to use the lump sum Net Unrealized Appreciation (NUA) technique rather than a conversion. This is especially true while capital gains rates are so significantly lower than ordinary income tax rates. Conversely, if an individual has a traditional pre-tax 401(k) and a traditional IRA with a large proportion of after-tax assets (basis), it is important not to roll the 401(k) into the IRA then convert the entire account, as the after-tax basis in the IRA would be diluted. Exploring New Techniques Given the advantages of tax-free growth for a potentially very long time, it is no surprise that advisors are proposing innovative techniques to maximize the Roth opportunity. These run the gamut from straightforward advice to aggressive strategies akin to those used by adventuresome estate planners. Some creative planners have suggested a partnership freeze technique. This is an interesting twist on the transfer tax techniques that were victims of the Chapter 14 revisions that occurred several decades ago. In this scenario, the assets of a traditional IRA are used to purchase preferred and common interests in a LLC. The common units are converted to a Roth IRA. Since the preferred units earn interest at the current market rate while the common units receive all excess return above this, if the investor s investments outperform the market, the asset growth will accrue tax 10

12 free in the Roth. This takes advantage of the fact that the enactment of Chapter 14 banned family partnership freezes for estate and gift tax purposes, but not for income tax purposes. To avoid any transfer tax issues, both the traditional and Roth IRA should have the same beneficiaries. Additionally, it is recognized that a credible valuation of the preferred and common interests is crucial. However, given recent challenges by the IRS, many tax advisors are now skeptical of the success of this strategy. Some creative ideas are solid but less likely to be useful. For instance, an investor may deduct the loss on his or her income tax return when withdrawing the entire balances from all of his or her Roth IRAs if the total market value is less than the cost basis. But before jumping ahead with this, investors should assess if it would truly be in their best long-term interest to deplete their tax-deferred nest egg. They also should make sure that they will actually be able to deduct the loss: to do so, deductions must be itemized and miscellaneous itemized deductions must exceed 2% of the individual s adjusted gross income. Finally, those who are under 59½ and don t meet any of the other exceptions will likely face a 10% early withdrawal penalty. Planners need not look too far afield to identify situations where a Roth IRA is beneficial. Some of these straightforward suggestions are often overlooked. For instance, parents may want to gift funds to children to open a Roth IRA when they have earned income from summer or part time jobs. Note, however, that this comes with the same caveat as UTMAs the accounts belong to the children and are available for their withdrawal when they reach the age of majority. Also, as with contributions to a traditional IRA, the child s earned income must be legitimate. Conclusion: Too Good to be True? Since January 1, 2010, high income earners have been able to participate for the first time in the tax-free asset growth of a Roth IRA by converting from a traditional IRA. A Roth conversion may provide significant tax savings for the right individual under the right circumstances. In addition, because of the ability to recharacterize assets post conversion, this strategy offers a rare opportunity to tax plan with an escape clause. It is best to assess this opportunity sooner rather than later. Many financial advisors doubted this conversion window would ever last until its effective date. Now that the advantages are being utilized and it has spawned a vibrant niche of 11

13 creative planning techniques, some of these attractive features and techniques could potentially be legislated away at any time. In conclusion, the old adage don t do this at home applies here. The decision to convert or not is complex and specific to each person. Furthermore, the rules based on current legislation are subject to change. Individuals and their advisors should, of course, discuss the advantages and disadvantages with their tax advisors in some depth. Complacency is not in order here. About the Author Joan Crain Senior Director, BNY Mellon Wealth Management Joan Crain is a senior director of BNY Mellon Wealth Management. As a national wealth strategist, Joan works closely with clients advisors and BNY Mellon portfolio managers and sales officers to provide comprehensive wealth management advice to clients and their families. Joan joined the firm in 2001 and has more than 25 years of experience in financial services, banking, and investments. Joan earned a master of business administration from Rollins College, a bachelor of education from Queens University, and a bachelor of music from McGill University. She is a Certified Financial Planner professional and has earned the designations of Certified Trust and Financial Advisor and Certified IRA Specialist from the American Bankers Association. She was named as the 2009 Trust Banker of the Year by the Florida Bankers Association (FBA). Joan is a frequent speaker at professional seminars and has been featured in numerous business publications. She chairs the Trust Legislative Committee for the FBA, serves on the Professional Advisory Council for the Broward Center for the Performing Arts and is on the Board of Directors for the Community Foundation of Broward. This material is provided for illustrative/educational purposes only. This material is not intended to constitute legal, tax, investment or financial advice. Effort has been made to ensure that the material presented herein is accurate at the time of publication. However, this material is not intended to be a full and exhaustive explanation of the law in any area or of all of the tax, investment or financial options available. The information discussed herein may not be applicable to or appropriate for every investor and should be used only after consultation with professionals who have reviewed your specific situation. Pursuant to IRS Circular 230, we inform you that any tax information contained in this communication is not intended as tax advice and is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein The Bank of New York Mellon Corporation. All rights reserved. 12 Rev. 1/2013 [72]