SEPTEMBER 2010
The IRA Distribution Manual
A Guide to Receiving Benefits From Your IRA
Contents
1. Retirement Income.................................................................2
2. Early Retirement.....................................................................3
3. Required Minimum Distributions..............................6
4. Your Beneficiary Election..............................................9
5. Tax and Possible Penalties..........................................14
6. Estate Planning and Your IRA...................................18
7. Beneficiary Distribution Rules...............................20
8. Life Expectancy Tables.....................................................21
Morgan Stanley Smith Barney IRA Distribution Manual
The IRA Distribution Manual
Over the course of your career, your IRA may have served as a cornerstone of your
long-term investment plan. Its ability to shelter personal contributions from annual
taxation, and to continue the tax-deferred status of retirement plan rollovers means
that your IRA now represents the fruits of your labors and investment acumen.
Structuring a distribution strategy that
best meets your income needs, while
keeping in mind the future needs of your
spouse or other beneficiaries, requires
some thoughtful advance planning.
Morgan Stanley Smith Barney produces
this manual to make you aware of the
numerous interrelated issues that could
affect your decisions. Please take some
time to read carefully the sections that
are pertinent to you. Since the regulations
governing IRA distributions are complex
and change from time to time, and
Morgan Stanley Smith Barney cannot serve
as your legal or tax advisor in interpreting
these rules, you will undoubtedly want to
solicit your tax and legal advisors’ opinions
on these matters as well.
Of course, it is impossible for a manual
to describe every situation. For specific
questions and guidance, feel free to
ask your Financial Advisor about our
complimentary financial planning analysis
to help you and your advisors in the
decision-making process.
Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC, its affiliates, and Morgan Stanley Smith Barney Financial 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 Smith Barney. 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 advisors before engaging in any transaction involving IRAs or other tax advantaged investment vehicles.
Morgan stanley Smith Barney 1
1. Retirement Income
The primary reason for funding your IRA and adding rollover amounts to it during the course
of your career is to provide income during your retirement years.
Retirement
Withdrawal Options
For IRA distribution purposes in this Manual, retirement is
defined as the time after you reach age 59½, whether or not
you continue to work.
Your IRA offers considerable flexibility in arranging
withdrawals. Some of the most popular withdrawal
options are:
Withdrawal Rules
• A total or partial distribution of cash and/or securities at
any time.
Beginning at age 59½, there are no restrictions on the
frequency or size of withdrawals from your IRA. At any time
you may request a partial or total distribution from your IRA.
Taxation of Withdrawals, Traditional IRAs
Depending on the type of contributions in your Traditional
IRA, withdrawals will be partially or totally subject to
ordinary income taxes. Deductible IRA contributions and all
IRA earnings are taxed as ordinary income upon distribution.
Nondeductible contributions made since 1987—and after-tax
rollover contributions made in 2002 and later—generally are
not taxable when withdrawn.
However, for purposes of determining the taxable portion
of a particular distribution, all Traditional IRAs must be
aggregated and before-and after-tax contribution amounts
removed on a proportionate basis under Internal Revenue
Code requirements.
In order to exempt nondeductible contributions from
taxation, it is important that you document each
nondeductible contribution by attaching IRS Form 8606 to
your tax return for the year the nondeductible contribution
was made. Your IRA statement tracks the amount of
deductible and nondeductible contributions you have made to
assist with this recordkeeping requirement.
Roth IRAs
Roth IRA distributions generally are not taxable, unless they
are removed from the Roth IRA within the first five years of
the Roth IRA’s existence and you are under age 59½, in which
case the earnings component of the distribution would be
taxable. A Roth IRA withdrawal of earnings before age 59½
will trigger taxes, plus a premature distribution penalty.
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2
• Regularly scheduled distributions of a specific amount, or
dividends and income only.
• Scheduled or ad hoc distributions delivered to you,
transferred to your Morgan Stanley Smith Barney
retail brokerage account, or transferred directly to your
bank checking account through our Automatic Funds
Transfer service.
• The convenience of a checkbook with our
IRA/FMA® service.
• Auto-RMD to ease the concerns about receiving Required
Minimum Distributions on time, every time.
Your Financial Advisor can provide you with additional
information about the benefits and features of any of our
distribution options, and facilitate the processing of your
withdrawal request.
Go to Section 5, “Taxes and Possible Penalties,” for
information on how to calculate the taxable and nontaxable
portion of an IRA distribution as well as for more Roth IRA
information.
Morgan Stanley Smith Barney IRA Distribution Manual
2. Early Retirement
While the primary purpose of an IRA is to accumulate and conserve your assets for
retirement, the realities of modern life sometimes run counter to the typical definition
of “retirement years.” So while the tax laws discourage distributions before age 59½ by
imposing an additional 10% penalty tax on early withdrawals, the laws also recognize an
increasing number of penalty-free exceptions.
EARLY RETIREMENT
Substantially Equal Periodic Payments
Early retirement for IRA distribution purposes in this Manual
refers to distributions received prior to age 59½, regardless of
whether or not you are working.
Substantially Equal Periodic Payments (also known as
“Section 72(t) Distributions,” after the section of the Internal
Revenue Code permitting their use) are a way for you to
receive periodic distributions from your IRA before age 59½
without the usual 10% premature distribution penalty tax.
You may select one of three permitted calculation methods
for determining the amounts you may receive. There are,
however, some important restrictions.
Nonpenalized Distributions
The 10% premature distribution penalty tax is only waived
under the tax rules for:
• Death distributions paid to a beneficiary
• Disability
• Medical expenses exceeding 7.5% of adjusted gross income
• College tuition expenses for yourself or family members
• Purchase of a first home ($10,000 lifetime maximum) per
eligible “qualified first time home buyer”
• Payment of medical insurance premiums after receiving
unemployment compensation for more than 12 weeks
• Qualified disaster distribution for limited geographic areas
for limited time periods as declared by the President or
defined by law
• Qualified Reservist distribution for individuals called into
active duty for more than 179 days
• “Substantially Equal Periodic Payments” as outlined below:
The following rules apply to Substantially Equal Periodic
Payments:
• Payments must be made at least once a year until age 59½,
or for five years, whichever period is longer. If you stop
(or change, except as described below), the penalty tax is
imposed.
• In general, you may not change the method or
calculation assumptions after payments have begun,
except in the case of death or disability. See the limited
exception to this “no-change” rule on page 4.
• If you have more than one IRA, you may elect Substantially
Equal Payments from one or more accounts. Or, if you
have one large IRA, you may wish to divide the account
and receive Substantially Equal Payments from one
account only.
• If you begin Substantially Equal Payments in the
middle of the year, you may prorate the first year’s
distribution amount.
Morgan stanley Smith Barney 3
• You must use IRS-stipulated interest rate assumptions
and the IRS-approved life expectancy factors when
determining Substantially Equal Payments.
• If you have made deductible and nondeductible
contributions, see Section 5, “Taxes and Possible Penalties,”
for information on how to calculate the taxable portion of
each year’s Substantially Equal Payments.
Substantially Equal PERIODIC
Payment Methods
IRS Revenue Ruling 2002-62 contains details on
each component of determining a Substantially Equal
Periodic Payment: determining the account balance, the
correct interest rate assumption and life expectancy factors
and the three methods for calculating Substantially Equal
Periodic Payments.
Life Expectancy Method
The first calculation method is commonly known as the Life
Expectancy Method or the required minimum distribution
method. This method uses the most recent life expectancy
factors issued by the IRS and the value of your IRA as of
any available valuation date prior to that year’s distribution,
but not earlier than the previous year-end value. Therefore,
if the value of your IRA increases, so will the amount
distributed. Conversely, if the value of your IRA declines,
your distribution for the year will be reduced. Generally,
this method of calculating the series of Substantially Equal
Payments will provide for the smallest distribution of the three
allowable methods, and unlike the other two distribution
methods, the amount will change each year based on the IRS
life expectancy tables without being deemed an impermissible
modification.
EXAMPLE
If you are age 50 when you initiate a Substantially Equal
Payments program, you must receive distributions at least
annually until age 59½. However, if you are age 57 when you
begin, you will need to take payments for five years until age 62.
For illustrative purposes only.
4
FIXED Annuitization Method
The Annuitization Method substitutes a present value annuity
factor for the life expectancy factor used in the other two
methods. In the Annuitization Method, the value of the
IRA is divided by an annuity factor (the present value of
an annuity of $1 per year beginning at your attained age
in the first year and continuing for life) to yield the fixed
distribution amount. The annuity factor must be determined
using the IRS-provided mortality tables. In spite of its name,
there is no need to actually invest in an annuity to choose this
option. Once the dollar amount is determined, it will not
change for the duration of the payout period unless you make
a one-time election to switch to the Life Expectancy Method.
See the section below for details on this election.
FIXED Amortization Method
The Amortization Method employs the same rules as the Life
Expectancy Method for determining the account balance and
life expectancy factor but adds a third component—a growth
rate assumption. The 2002 Revenue Ruling stipulates that the
highest rate that may be used is 120% of the federal midterm
rate for either of the two months immediately preceding the
initial month of distribution. This rate is published monthly
by the IRS and may be found at the IRS web site www.irs.gov.
In September 2010, 120% of the federal mid-term rate was
2.33%. Once the dollar amount is determined, it will not
change for the duration of the payout period unless you make
a one-time election to switch to the Life Expectancy Method.
See the section on page 5 for details on this election.
Limited Exception to the “No Change” Rule
In general, once a withdrawal method schedule is determined,
it cannot be changed without risking the retroactive
imposition of the 10% premature distribution tax on all
prior distributions before age 59½, plus interest. The only
exceptions to this rule are for disability or death, or as
outlined in the next paragraph.
Morgan Stanley Smith Barney IRA Distribution Manual
EXAMPLE
A 50-year-old wishes to receive Substantially Equal Payments from his $200,000 IRA. Payments would need to continue for 11 years until
age 59½. The chosen amortization or annuitization rate is a recent calculation of 120% of the federal mid-term rate. For this example, this
assumed rate is 3.2%. The single life expectancy table is applied.
Annual Distribution
Initial Life Expectancy Payout
$5,848
Amortization Method
$9,705
Annuitization Method
$9,663
Source: Morgan Stanley Smith Barney. For illustrative purposes only.
Since 2003, individuals using either the Fixed Amortization
or Fixed Annuitization Methods may exercise a one-time
election to switch to the Life Expectancy Method. Once this
switch is made, the Life Expectancy Method must be used to
calculate all future Substantially Equal Periodic Payments. No
other options are permitted, such as switching from the Life
Expectancy to the Amortization or Annuitization Methods,
or from the Annuitization to the Amortization Method. This
is an irrevocable choice, and may substantially decrease your
income, so please be sure to work closely with your Financial
Advisor as well as your tax advisor to carefully model the
elections used to determine the revised distributions.
Upon request, your Financial Advisor can prepare a
customized distribution analysis that calculates the permissible
distribution amounts under the three substantially equal
payment methods, shows you the number of years you must
receive the payments, and highlights their impact on your
long-term retirement finances.
Trustee-To-Trustee Transfers
May Result In Penalties
In 2007, an IRS Private Letter Ruling imposed the 10%
premature distribution penalty plus interest on a taxpayer
who was receiving the correct amount of Substantially Equal
Periodic Payments, but, who, during that time, elected
to transfer assets between IRA custodians for the purpose
of diversifying his investments. The IRS viewed this as
an impermissible modification of the Substantially Equal
Distribution regulations. While this Private Letter Ruling
represents the IRS’ first ruling on this specific issue, it should
act as a cautionary warning to consult your tax or legal
advisor about the management of an account paying out early
distributions or any division or movement of such accounts
once a Substantially Equal Periodic Payment has commenced.
Morgan stanley Smith Barney 5
3. Required Minimum Distributions
Up until age 70½, you may decide whether or not to take distributions from your IRAs. After
age 70½, however, regulations governing IRAs generally require that you remove a certain
minimum amount from your Traditional IRA, SEP IRA or SIMPLE IRA every year. The minimum
amount is calculated using a life expectancy factor and the fair market value of the IRA.
Required Beginning Date
Roth IRAs
April 1 of the year following the year in which you attained
age 70½ is your Required Beginning Date.
Roth IRAs are exempt from Required Minimum
Distributions during your lifetime but nonspouse beneficiaries
are required to receive annual payments from the Roth IRA.
See Section 4 for more details.
Beginning to Receive Distributions
The requirement to begin receiving withdrawals from your
Traditional IRA, SEP IRA or SIMPLE IRA by December
31 in the year you turn 70½ may be postponed for your
first Required Minimum Distribution until no later than
April 1 of the calendar year following the year in which you
reach age 70½. Subsequent withdrawals of the required
minimum amount must be received by December 31 of every
year. If you elect to postpone your first distribution until
the following April 1, this will result in the first and second
required distribution being made in one taxable year. Also, the
second distribution will be somewhat larger than necessary,
since the year-end value will include the undistributed
Required Minimum Distribution. No adjustment to the yearend value is permitted.
NOTE: In 2009, the IRS permitted a one-time waiver of the RMD
requirements, but that waiver has not been continued for tax years
2010 and beyond.
EXAMPLE
If your date of birth is August 4, 1939, you will attain age 70½
on February 4, 2010. You may elect to begin distribution of your
required minimum amount anytime during 2010 or defer the first
withdrawal until as late as April 1, 2011. The second required
minimum withdrawal must be received no later than December
31, 2011.
The first withdrawal would be based upon the fair market value
of your IRA on December 31, 2009. The required amount for the
second withdrawal would be based on the December 31, 2010,
fair market value of the IRA. (No fair market value adjustment is
permitted if you postpone your first distribution.)
For illustrative purposes only.
6
Requesting a Required
Minimum Distribution
To initiate a distribution, contact your Financial Advisor for
either the IRA Distribution Request form or the Auto-RMD
Request form. You may also download these forms from our
web site, www.morganstanleysmithbarney.com. The AutoRMD Distribution Request form will assure that your RMD
payments as calculated and displayed on your statements are
paid correctly every year, on time without any last-minute
paperwork. Complete either form and return it to the office
servicing your account.
Transfers or Rollovers After Age 70½
If you transfer or roll over your IRA from one custodian to
another after age 70½, it may be necessary to recalculate
your RMD. The recalculation would adjust your IRA’s
year-end value by the amount of any transfer, rollover
or recharacterization that did not settle by the previous
December 31. You may satisfy your RMD from any
IRA account or accounts except Roth IRAs. See special
considerations for a Roth conversion after age 70½ on page
17. Please note that annual RMDs may not be converted to a
Roth IRA.
Morgan Stanley Smith Barney IRA Distribution Manual
Insufficient or Late Required
Minimum Distributions
Determining Your Required
Minimum Distribution
If you take less than the required minimum amount, you
may be liable for a penalty tax equal to 50% of the difference
between the amount that should have been withdrawn and
the amount actually removed from the IRA. Traditional and
Roth IRA beneficiaries who are required to receive annual
payments are also subject to the 50% penalty.
To determine your distribution period factor, you must use
the life expectancy tables published by the Internal Revenue
Service. The tables, most recently revised in 2002, are
included in Section 8 of this manual. The only tables that
apply to IRA account owners are:
Your IRA Statement
• Joint Life Expectancy Table—only used when a spouse
beneficiary is more than ten years younger than you and is
the sole beneficiary of your account
To help you meet your obligation to receive Required
Minimum Distributions from your IRA, an additional section
is included in your IRA statement beginning in the year you
attain age 70½. Each statement includes information about
your Required Minimum Distributions and your primary
beneficiary designations. Your statement displays your
Required Minimum Distribution amount for the current year
based upon these factors:
• Your age;
• Your IRA’s prior year-end account balance; and
• Your beneficiary. If your spouse is your sole beneficiary, the
calculated RMD takes into account whether he or she is
more or less than ten years younger than you.
• Uniform Lifetime Table—most people will use this table
Uniform Life Expectancy
The Uniform Lifetime Table will be used by IRA owners
who are:
• Married with a spouse beneficiary who is less than
ten years younger
• Married with both spouse and nonspouse beneficiaries
• Married with nonspouse beneficiaries
• Unmarried with or without designated beneficiaries
IRS regulations require IRA custodians to report to the
IRS which accounts are subject to Required Minimum
Distributions. Actual dollar amounts are not reported.
Morgan stanley Smith Barney 7
Joint Life Expectancy
You may use a joint life expectancy factor only if you have
named your spouse (or certain types of trusts for the benefit
of your spouse) as the sole beneficiary of your IRA and
your spouse is more than ten years younger than you. This
life expectancy factor is located on the Joint Life and Last
Survivor Life Expectancy Table found in Section 8.
If your designated beneficiary is not your spouse (regardless of
the beneficiary’s age), or if you name your spouse along with
other primary beneficiaries, you must use the Uniform Life
Expectancy Table when determining required distributions.
GO TO Section 4, “Your Beneficiary Election,” for more
details on naming a trust as beneficiary.
Calculating Required
Minimum Distributions
Always use your age as of your birthday for the current
calendar year for which you are calculating the distribution.
If you use the Joint Life Expectancy Table, use your age
and that of your spouse at the end of the year. This means
for your first distribution you will use either age 70 or 71,
depending on the month of your birth. If you take your first
Required Minimum Distribution between January 1 and
April 1 of the next year, use your age (and your spouse’s age,
if applicable) on your birthday(s) in the previous year to
calculate the first distribution, but your age (and your spouse’s
age, if applicable) in the current year to calculate your second
distribution that is due by December 31.
If you were:
• Born between January 1 and June 30, use age 70
• Born between July 1 and December 31, use age 71
The dollar amount of your Required Minimum Distribution
is determined by dividing your account balance at the end
of the previous calendar year by the appropriate distribution
period factor.
EXAMPLE
This is the basic formula for calculating a Required Minimum Distribution using the Internal Revenue Service life expectancy tables:
Account Balance, Prior 12/31
=
Required Minimum Distribution in Dollars for Current Year
Life Expectancy Factor
Account Balance, Prior 12/31
=
$150,000
Uniform Life Expectancy
For illustrative purposes only.
8
27.4
=
$5,475
Morgan Stanley Smith Barney IRA Distribution Manual
4. Your Beneficiary Election
Your IRA is designed primarily to provide you with retirement income, but it may also help
provide a source of income for your designated beneficiaries. You should consider your
options carefully in consultation with your tax and legal advisors.
Selecting Your Beneficiary
It is important to specifically indicate in writing who your
IRA beneficiaries are for the following reasons:
• The disposition of your IRA assets are not controlled by
your will.
States with community property (or similar-type)
laws include:
• Arizona
• Louisiana
• Texas
• California
• Nevada
• Washington
• Idaho
• New Mexico
• Wisconsin
• The calculation of your Required Minimum Distribution
may depend upon whom you name as beneficiary.
In Alaska, spouses can sign an agreement making specific
assets community property.
Morgan Stanley Smith Barney recommends that you
periodically reconfirm your beneficiary designations. To
assist you in remembering who your beneficiaries are,
your IRA statement includes this information.
In addition, Puerto Rico is a community property
jurisdiction.
You may designate anyone as the beneficiary of your IRA.
However, there are additional considerations if you live in
a community property state, or if you name a minor as a
beneficiary.
If you designate a minor as beneficiary of your IRA, the
local probate court may appoint a guardian for the minor’s
property. Therefore, it is generally advisable to name as the
IRA beneficiary a Custodian under the Uniform Transfers to
Minors Act (UTMA). The UTMA Custodian would have
more flexibility in applying IRA distributions for the use and
benefit of the minor than would a court-appointed guardian.
Of course, the minor will control the IRA at either age 18
or 21, depending on state law. If that isn’t advisable, another
alternative is to name a special trust as IRA beneficiary. A
trust has the further advantage of allowing payments over an
extended number of years.
Community Property
If you are married and currently live or have ever lived in a
community property state, all or a portion of your IRA might
be considered community property. If this is so, and you have
named someone other than your spouse as sole beneficiary of
your IRA, your spouse will be required to sign the beneficiary
designation form as proof of consent and acknowledgment
that he or she has no claim to your IRA assets.
As of the publication date of this manual, the states listed here
are community property states. Since state laws may change,
you should contact a tax or legal advisor in your state for the
most up-to-date information.
Minors as IRA Beneficiaries
Multiple Beneficiaries
You may designate more than one primary beneficiary for
your IRA. You may specify a percentage or dollar amount that
is to be paid to each beneficiary.
Morgan stanley Smith Barney 9
You may also indicate whether a beneficiary’s share will end if
he or she predeceases you or if that share will pass to his or her
children. This situation typically comes into play when you
designate equal shares to all your children. These explanations
of the more common designations should be reviewed for
state variations, since terminology and definitions may differ
somewhat from state to state.
Beneficiary designations are important. Please be sure you
understand your choices. It is equally important to review
your designations periodically and whenever you have a
change in family circumstances, such as marriage, divorce,
birth, adoption or death.
All My Children
If you use this term or name each child specifically, your IRA
assets will be divided among your surviving children only. If
one of your children dies before you, the remaining children
will share equally in the deceased child’s portion.
Per Stirpes
If you indicate that death distributions will be per stirpes (in
some states the term used is “Rights of Representation”), it
means that the children of a beneficiary who predeceases you
will share equally in that portion of your IRA originally left
to the now-deceased child. For example, if you designate that
your three children will share your IRA equally, but one son
predeceases you, that one-third share would be divided equally
among his surviving children.
Per Capita
This method divides your IRA assets among your beneficiaries
and the descendants of any beneficiary who dies before
you. For example, if you name your three daughters as your
primary beneficiaries and one of them dies before you, each
of her three children will receive a share equal to that of your
other two daughters—splitting the IRA into five equal parts.
10
Contingent Beneficiaries
In addition to naming one or more primary beneficiaries to
receive the assets in your IRA, you may also name contingent
beneficiaries. A contingent beneficiary is someone you
designate to receive your IRA only if all primary beneficiaries
predecease you, die simultaneously with you or disclaim their
rights to the IRA assets. These are the only circumstances
under which a contingent beneficiary would be entitled to the
assets in your IRA.
Determining Your Designated Beneficiary
IRS Regulations specify that after your death the designated
beneficiaries must be identified by the September 30th of
the year following your death. The concept of determining
your designated beneficiaries after you die does not mean
that beneficiaries will be added or eliminated. What will
be possible is for each beneficiary to decide what his or her
best distribution strategy is (such as receiving a lump-sum
payment or disclaiming) without impinging on the other
beneficiaries’ elections to receive annual payments based on
each beneficiary’s single life expectancy.
For example, assume your two children and a charity are
your primary beneficiaries. First, the charity could elect
an immediate distribution of its share. The other two
beneficiaries may elect to receive payments over their own
single life expectancies. In this case, two separate beneficiary
accounts must be established (separate ones for each child) by
December 31 of the year following the year of your death.
The beneficiaries who wish to receive payments based on
their life expectancies will need to receive the first payment
by December 31 of the year after the year of your death. If a
beneficiary dies prior to the September 30 date, the deceased
beneficiary’s life expectancy would still be used to determine
distributions, thus avoiding an unintended accelerated payout
of your IRA.
Morgan Stanley Smith Barney IRA Distribution Manual
After Your Death
A NonSpouse as Your Beneficiary
If you die after your Required Beginning Date and did not
receive your total Required Minimum Distribution for that
year, then the balance of the Required Minimum Distribution
for the year of your death must be paid to your beneficiary,
and he or she will not be able to roll that amount over to an
IRA in his or her own name.
If you designate a nonspouse beneficiary (for example, children,
grandchildren, friends, charities, colleges), your Required
Minimum Distribution amount will be determined using the
Uniform Lifetime Method. Your beneficiary will be required to
receive annual distributions after your death based on his or her
own remaining single life expectancy reduced by one each year.
Nonspouse beneficiaries are not allowed to roll inherited IRAs
into their own IRAs. However, they are permitted to maintain
separate “beneficiary IRAs” for an extended period of time from
which they receive annual Required Minimum Distributions.
At the beneficiary’s option, new beneficiaries may be named
to continue to receive distributions of any remaining balance
based on the original beneficiary’s life expectancy at the death of
your designated beneficiary.
Your Spouse as Beneficiary
After you die, your surviving spouse has several special
distribution options from which to choose.
Specifically, your spouse has the opportunity to roll over your
IRA into an IRA in his or her own name, and to designate
new beneficiaries. A surviving spouse can do this regardless
of current age or whether or not you were receiving Required
Minimum Distributions. If you were receiving Required
Minimum Distributions at the time of your death, the
distribution for that year must be made to your surviving
spouse if it wasn’t distributed prior to your death. Any
required distributions from the new IRA would commence
at your spouse’s Required Beginning Date calculated with a
uniform life expectancy factor.
Other Distribution Options for a Spouse Beneficiary
• If your surviving spouse does not elect to roll over your IRA
into an IRA in his or her own name as described above,
he or she may treat your IRA as his or her own IRA so
long as your spouse is the sole beneficiary of the account
and so long as your spouse withdraws your Required
Minimum Distribution for the year of your death, if
necessary. Alternatively, if you die before your Required
Beginning Date, your spouse, so long as he or she is your
sole beneficiary, may postpone distributions until the year
you would have reached age 70½ or the December 31 of
the year following the year of your death, whichever is later.
In either case, the surviving spouse will receive distributions
based on his or her own single life expectancy (recalculated
annually) even if he or she designates new beneficiaries.
Beneficiaries may not aggregate Required Minimum
Distributions from a beneficiary IRA with distributions
from other IRAs they may have.
Each nonspouse beneficiary may ask Morgan Stanley
Smith Barney to calculate his or her annual minimum
distribution. This amount will be displayed on the
beneficiary’s IRA statement.
GO TO Section 7 “Beneficiary Distribution Rules” for more
information about distribution options for all beneficiary types.
Your Estate or Trust as Your Beneficiary
Generally, if you designate your estate, a Q-TIP or credit shelter
trust, a charity or any other legal entity with no life expectancy
as your IRA beneficiary, your Required Minimum Distributions
after age 70½ must be calculated using the Uniform Life
Expectancy Table. Limited exceptions to this rule are possible.
For example, if specific guidelines are followed, you may
designate certain types of trusts as the primary beneficiary of
your IRA, and the beneficiaries of the trust may be viewed as
the beneficiaries of your IRA for purposes of determining your
Required Minimum Distributions.
Morgan stanley Smith Barney 11
The rules for establishing a trust that will meet the
requirements for naming a trust as designated beneficiary
of an IRA are:
• The trust must be valid under state law;
• The trust must be irrevocable, or a revocable trust that
becomes irrevocable no later than your date of death;
• The beneficiaries of the trust must be identifiable from the
trust document; and
• A copy of the trust must be provided to the custodian
or trustee of your IRA. Alternatively, a certification as
to the identity of the beneficiaries may be provided, and
subsequently the trust document must be provided to the
IRA Custodian no later than October 31 of the year after
your death.
The trust must meet these conditions as of the later of the date
in which the trust is named as a beneficiary or the September
30 of the year after your death.
A Trust Beneficiary
If you die before or after your Required Beginning Date,
and assuming the trust meets the requirements listed above,
the trustee of your trust may elect one of the following
payout options:
• Single-sum distribution
• Scheduled withdrawals over the life expectancy of the oldest
beneficiary named in the trust
12
The trust receives the distributions for the trust’s beneficiaries.
Please note that if the beneficiary of your trust is your
surviving spouse, he or she will not be able to roll over the
proceeds of your IRA, as would be possible if your spouse
were named directly as the designated beneficiary.
The payment options are different if the trust you designate as
beneficiary does NOT meet the requirements listed above to
allow the trust beneficiaries to receive payments over the life
expectancy of the oldest trust beneficiary. Instead the choices are:
• If you die before the Required Beginning Date, beneficiaries
must deplete the IRA during a five-year period that begins
on the December 31 following your death. The entire
amount must be distributed by the end of the fifth year.
• If you die after the Required Beginning Date, beneficiaries
may receive annual payments over the IRA owner’s
remaining life expectancy.
Your Estate as Beneficiary
• If you die before your Required Beginning Date, and your
estate is the beneficiary, the personal representative of your
estate would be empowered to request either a single-sum
payment, or periodic distributions over no more than
five years. If the estate administration is to be terminated,
it may be possible to have payments assigned directly to
the beneficiaries of the estate, but there are limits on such
beneficiaries’ ability to defer taxation on the amounts.
• If you die after your Required Beginning Date, the personal
representative may elect to continue your remaining termcertain schedule until the IRA is depleted.
Morgan Stanley Smith Barney IRA Distribution Manual
Probate
If your estate is your IRA beneficiary, the IRA proceeds may
be subject to probate.
EXAMPLES
Husband dies at age 68. After his death, his wife rolls his
Roth IRA into her own new Roth IRA and names new
beneficiaries. No distributions need to be taken by the wife.
Roth IRA owner dies when his son, the named beneficiary, is
45 years old. His son’s life expectancy is 38.8 years. The son
may elect to begin receiving annual payments over the next
38.8 years using a term-certain calculation method.
For illustrative purposes only.
Qualified Disclaimers
An IRA beneficiary may choose to make a qualified disclaimer
by refusing to take ownership of any part of your IRA. By
making a qualified disclaimer, your beneficiary is considered
not to have made a taxable gift. However, the disclaiming
beneficiary may not direct to whom the money should
go, and must disclaim within nine months of your death.
A disclaiming beneficiary may receive the undistributed
Required Minimum Distribution, if any, in the year of your
death, without jeopardizing the ability to disclaim any part of
your IRA assets.
Disclaimed amounts will pass to any remaining designated
primary or contingent beneficiaries, or, if none, the custodial
or trust document’s default provisions will dictate final
disposition of disclaimed amounts. For example, Citigroup
Global Markets Inc.’s IRA for clients of Morgan Stanley
Smith Barney would first recognize a surviving spouse, then
surviving children, per stirpes; surviving parents; and, finally,
the estate of IRA owner.
Qualified disclaimers are often used for estate planning
purposes. A typical situation is where the spouse is the
primary beneficiary and a Credit Shelter Trust is the
contingent beneficiary. If the spouse disclaims, the IRA assets
default to the Credit Shelter Trust. The rationale for using
a qualified disclaimer in this situation is that after the IRA
owner’s death the Credit Shelter Trust could be funded with
the remaining IRA assets to take advantage of the IRA owner’s
federal estate applicable exclusion amount when the IRA
owner does not have sufficient assets outside the IRA to fund
the trust.
After Your Death: Roth IRAs
One of the attractive features of a Roth IRA or Roth IRA
rollover is that the account owner need not receive any
Required Minimum Distributions. After the account owner
dies, the named beneficiaries must determine whether or not
they are required to receive distributions based upon their
life expectancies.
If the beneficiary of the Roth IRA is the surviving spouse, the
spouse may elect to roll the Roth IRA over to his or her own
Roth IRA and designate new beneficiaries. The spouse would
not be required to take any distributions during his or her
lifetime.
After the death of the surviving spouse, or in the event that
the original account owner named a nonspouse beneficiary for
the Roth IRA, distributions to the beneficiaries must begin by
the December 31 of the year following death. These required
distributions would be calculated using the life expectancy
factor of each designated beneficiary reduced by one each year.
Morgan stanley Smith Barney 13
5. Tax and Possible Penalties
The general rule is that distributions from Traditional IRAs are subject to ordinary income
taxes. However, if you made both deductible and nondeductible contributions, or rolled over
after-tax contributions from an employer-sponsored retirement plan, you or your beneficiaries
must determine the taxable portion of every IRA distribution. Also, distributions may be
penalized in certain circumstances.
Calculating the Taxable
Portion of IRA Distributions
4. MULTIPLY the distribution amount by the tax
exclusion percentage.
Fully Taxable Distributions—If you only made deductible
IRA contributions to all the Traditional IRAs you own,
each distribution will be fully taxable as ordinary income in
the year you or your beneficiaries receive the distribution.
Before-tax amounts that you may have rolled over from your
employer’s qualified retirement plans would also be fully
taxable upon withdrawal from your Traditional IRA.
5. SUBTRACT the amount excludable from income from
the distribution amount to determine the amount of the
distribution that is taxable.
Partially Taxable Distributions—If some or all of your
Traditional IRA contributions were nondeductible, or if
you rolled over after-tax contributions from an employersponsored plan, a portion of each distribution will be
considered a tax-free return of your nondeductible
contributions. You or your beneficiaries are required to
aggregate the value of all your Traditional IRAs if you have
more than one IRA when determining the taxable portion
of a particular distribution. You may not remove your
nondeductible or after-tax rollover contributions first. Do not
include the value of any Roth IRAs in this calculation.
Calculating the Tax Exclusion Percentage
1. ADD together all your nondeductible IRA contributions
and after-tax rollovers, excluding Roth IRAs.
2. ADD together the total value of all your IRAs, excluding
Roth IRAs, as of the end of the current year, plus the
amount of any distributions received this year.
3. DIVIDE the total amount determined in Step One by the
total value of all your IRAs plus distributions determined
in Step Two. This is the tax exclusion percentage.
14
EXAMPLE
An IRA owner withdraws $5,000 this year. At the end of the year,
the balances in the person’s IRA accounts, including earnings,
total $17,500. The IRAs include $6,000 in nondeductible
contributions. There were no prior tax-free withdrawals. The
amount includable in income is figured as follows:
1. Amount withdrawn from IRAs during the year
$5,000
2. Net amount of all nondeductible contributions to
IRAs (gross amount, less any tax-free withdrawals
in prior years)
$6,000
3. Balance of all IRAs at end of year plus
item (1) amount
$22,500
4. Exclusion percentage — (2) divided by (3)
.27
5. Amount excludable from income — (1)
multiplied by (4)
$1,350
6. Amount includable in income — subtract (5)
from (1)
$3,650
For illustrative purposes only.
Tax-Free Distributions
Most Roth IRA distributions are not subject to income taxes if
they meet the requirements of a “qualified IRA distribution.”
See page 16 for special taxation rules for different types of IRAs.
Morgan Stanley Smith Barney IRA Distribution Manual
Tax Withholding, Federal Taxes
Potential Penalty Taxes
By law the taxable portion of any Traditional or Roth IRA
distribution is subject to automatic withholding of federal
income taxes. However, you may instruct that you do not
want automatic withholding.
Premature Distributions—If you withdraw all or any portion
of your Traditional IRA or SEP-IRA prior to age 59½, the
taxable portion of the distribution (see example on page 14 to
determine this amount) will be subject to a 10% premature
distribution penalty tax in addition to regular income taxes.
Separate premature distribution penalties apply to SIMPLE
IRAs. See the discussion at the end of this section.
Check with your tax advisor about the impact of the quarterly
estimated tax rules, including underpayment penalties, if you
decline the automatic withholding.
State Taxes
At your request state income taxes can also be withheld from
most types of distributions, unless your state of residence does
not accept tax-withholding payments on retirement distributions.
State and Local Income Taxes
There are numerous exemptions from the premature
distribution penalty tax, although regular income taxes
will still apply:
1. Substantially Equal Payments
See Section 2 for the details of this distribution option.
2. Rollovers
It is important to consult with your tax advisor and local
tax authorities for current information about the taxability
of any IRA distributions. Some states follow the federal tax
rules outlined above but some do not. Also, some states have
annual exemption amounts for IRA and other retirement plan
distributions.
You are not liable for the penalty tax when you make a timely
rollover deposit of a lump-sum distribution or an eligible
IRA distribution. In order to be considered timely, you must
deposit your rollover distribution with an IRA custodian or
trustee no later than the 60th calendar day from the time
distributed. Separate rollover rules apply to SIMPLE IRAs.
See the discussion later in this section.
Estate Taxes
3. Disability
If your spouse is your IRA beneficiary and is a U.S. citizen,
the disposition of your IRA qualifies for the marital
deduction, and thus is not subject to estate taxes at your
death. If your spouse is not a U.S. citizen, without
special planning the IRA assets are subject to estate taxes
at your death.
If you become totally and permanently disabled at any age,
you may draw upon your IRA in any manner you choose
without a premature distribution penalty.
If your IRA is to be distributed to nonspouse beneficiaries,
generally estate taxes would be due, whether or not they are
U.S. citizens.
4. Large Medical Expenses
If in any year your unreimbursed medical expenses exceed
7.5% of your adjusted gross income, you may request a
penalty-free withdrawal equal to these expenses.
5. College Tuition
Penalty-free withdrawals for tuition, room and board, and
related expenses are permitted for you or a family member
(including grandchildren).
Morgan stanley Smith Barney 15
6. Purchase of a New Home
If you or your spouse have not had an ownership interest in a
primary residence in the past two years, you may withdraw a
lifetime maximum of $10,000 to buy, build or reconstruct a
residence for:
a. you
b. your spouse
c. your or your spouse’s child
d. your or your spouse’s grandchild
e. your or your spouse’s parent or other ancestor.
7. Medical Insurance Premiums
After receiving unemployment compensation for at least 12
weeks, you may request a penalty-free withdrawal from your
IRA to pay medical insurance premiums.
8. Death
Distributions made to designated beneficiaries after your
death are not subject to a premature withdrawal penalty,
regardless of your age or the age of your beneficiary when
you die or when the distributions occur.
9. Active Reservist
Distributions may be made to a reservist who is called to
active duty between September 11, 2001 and December 31,
2007 for a period in excess of 179 days or for an indefinite
period. Distributions must occur during the period beginning
on the date of such call to duty and ending on the close of the
active duty period. Special “recontribution” rules pertain.
10. Disaster Distribution
Qualified disaster distributions are declared by the President or
defined by law for limited time; for example, Hurricane Katrina.
Late or Insufficient Required
Minimum Distributions
Penalties also apply to amounts that should have been
distributed, but were not. The IRS imposes a substantial
excise tax for withdrawals of less than the Required Minimum
Distribution amount from an IRA each year after age 70½
or from a nonspouse Roth IRA Beneficiary account. Unless
you can provide a reasonable cause, a 50% excise tax will be
16
levied on the difference between the Required Minimum
Distribution and the actual distribution received. You may
request a waiver of the additional tax using IRS Form 5329.
IRA custodians are required to report to the IRS those IRA
owners subject to Required Minimum Distributions.
Tax Withholding
The custodian of your IRA is required by law to withhold
federal income taxes from all IRA distributions paid to
you unless you are eligible to specifically elect not to have
these taxes withheld and you do, in fact, elect to have
no withholding. You may decline this tax withholding
by completing the Morgan Stanley Smith Barney IRA
Distribution Request form. You are not eligible to decline the
tax withholding if you are a US citizen or resident alien and
your home address is outside the US or its possessions. Before
deciding whether or not to have taxes withheld, you should
review with your accountant or tax advisor how you might be
affected by these tax-withholding requirements and by IRS
estimated income tax payment rules.
Special Taxation Rules for
Different Types of IRAs
Roth IRAs
Roth IRAs were created in 1998. Roth IRAs allow annual
nondeductible contributions, subject to certain income limits.
Distributions that do not exceed amounts contributed are
always eligible for tax-free and penalty-free withdrawals
regardless of your age or the number of years in the Roth IRA.
Tax-free distributions of earnings from the Roth IRA are
subject to restrictions. If you and the Roth IRA meet these
specific requirements, the earnings will be tax-free and
penalty-free even if you are under age 59½:
• Attainment of age 59½ and the Roth IRA has been
established for at least five years
• Disability and the Roth IRA has been established for at
least five years
• Purchase of a first home ($10,000 lifetime maximum) and
the Roth IRA has been established for at least five years
Morgan Stanley Smith Barney IRA Distribution Manual
• Payment to a beneficiary after the Roth IRA has been
established for at least five years
Distributions of earnings from a Roth IRA that do not match
one of the above reasons will be considered taxable income.
A distribution of earnings for one of the following reasons
will be subject to ordinary income tax, but no 10% premature
distribution tax if you are under age 59½ when withdrawn:
• Medical expenses exceeding 7.5% of adjusted gross income
• Purchase of medical insurance after receiving more than
12 weeks of unemployment compensation
• College tuition and related expenses for yourself or a
family member
Withdrawals of earnings before age 59½ for any other reason
besides those specifically listed above will be subject to
ordinary income tax and a 10% premature distribution tax.
Taxation Of Traditional IRA To Roth IRA Conversions
Roth IRA Conversions After Age 70½
There are additional considerations to be aware of if you plan
a Roth conversion in the year you attain age 70½ or in a
subsequent year.
In the year of conversion, you may not convert your Required
Minimum Distribution. You must either withdraw it
before the conversion, or, alternatively, if you do not wish
to accelerate the payment, you must leave the Required
Minimum Distribution amount in your Traditional IRA and
remove it by the end of the year or April 1 if you elect the
first-year postponement.
The amount of your Required Minimum Distribution will
not be included in the AGI threshold calculation used to
determine your eligibility to convert from a Traditional to a
Roth IRA.
Additional taxation rules may apply to distributions from a
conversion Roth IRA that has not been in existence for five
taxable years, or if you are under age 59½.
If you wish, you may convert your existing Traditional IRA to
a Roth IRA.
GO TO the Morgan Stanley Smith Barney brochure, IRAs:
Powering Your Retirement for specifics.
Beginning in 2010, the $100,000 income ceiling for a
Roth conversion is eliminated. Also, in 2010 you are able to
convert to a Roth IRA, and pay the taxes due on one-half of
the additional income over the next two years in 2011 and
2012. Conversions after 2010 will follow the regular tax rules,
meaning that earnings and any deductible contributions will
be taxable in the year of conversion.
SIMPLE IRAs
Also, beginning in 2010 married taxpayers filing separately
will be allowed for the first time to convert a Traditional IRA
to a Roth IRA.
The same distribution rules that apply to Traditional IRAs also
apply to SIMPLE IRAs, with the following exception:
• Distributions prior to age 59½, and within two years
following the first contribution to the SIMPLE IRA, are
subject to a 25% penalty tax, unless the distribution is
rolled over to another SIMPLE IRA, or one of the pre-age
59½ exceptions applies.
Morgan stanley Smith Barney 17
6. Estate Planning and Your IRA
IRAs can be an effective means of transferring wealth to future generations. How you
coordinate your IRA into your overall estate plan is an increasingly important consideration.
More and more, affluent IRA owners are looking for ways to obtain the greatest possible
IRA benefits for their heirs.
Certainly, the issues that have been discussed in other sections
of this manual are critical to meeting this objective. Selecting
your primary and contingent beneficiaries carefully is still the
foundation of good estate planning for your IRA. However,
there are additional, related techniques that can carry your
IRA further than you may have thought possible. Consider
these issues:
• “Stretch IRAs” to help stretch tax-deferred growth to the
maximum
• Using trusts as IRA beneficiaries
• Cost-efficient ways to pay anticipated estate taxes
• Professional money management of your IRA assets
during your lifetime or for your beneficiaries
The “Stretch IRA” Helps To Stretch
Tax-Deferred Growth to the Maximum
A popular planning concept that has gained currency is
known as the Stretch IRA. A Stretch IRA election allows
your Traditional or Roth IRA to be inherited by children,
grandchildren or even great-grandchildren. Upon your death,
your beneficiary’s actual life expectancy would determine a new,
much-prolonged schedule of annual payments. This means that
more of your IRA stays income-tax-deferred for an extended
period, greatly increasing the opportunity for tax-deferred
growth, and the potential value of the IRA to your beneficiaries.
Beginning in 2007, it is also possible in some situations for a
nonspouse beneficiary to transfer assets that were held in your
employer’s qualified plan (such as a 401(k), profit sharing,
18
governmental 457 plan, 403(b), or pension plan) to a Stretch
IRA after your death. However, it may still be advisable to
affect the direct rollover to an IRA during your lifetime if your
wealth transfer plan calls for the Stretch IRA strategy.
If the Stretch IRA is an option for you, you need to be sure
that young beneficiaries have professional guidance for their
investments and that the terms of the IRA are administered
correctly over many years.
Using a Trust as Your IRA Beneficiary
Now that the Internal Revenue Service permits the use of
revocable trusts (that become irrevocable at the death of the
account holder) as designated IRA beneficiaries, this option is
popular with individuals whose wealth is concentrated in their
retirement plans and IRAs.
For instance, a Credit Shelter Trust/Marital Deduction Trust
combination is frequently used when assets to fund the trusts
are in your IRA. The Credit Shelter Trust is typically funded
at the death of the first spouse. It assures that both spouses are
able to use their Applicable Exclusion Amounts. The Marital
Deduction Trust would be used if there were excess property
remaining after the funding of the Credit Shelter Trust. In
both situations, special care is needed to assure that Required
Minimum Distributions are withdrawn to avoid an excise tax.
This consideration is a part of estate and income tax planning
and how they relate to trusts.
Clients should consult their tax advisor for matters involving
taxation and tax planning and their attorney for matters
involving trust and estate planning and other legal matters.
Morgan Stanley Smith Barney IRA Distribution Manual
Payment of Estate and
Annual Income Taxes
One often-overlooked consequence of being a Traditional
IRA beneficiary is having to pay additional income tax every
year. However, a beneficiary receiving what is called “income
in respect of a decedent” (IRD) from a Traditional IRA may
be able to deduct each year that part of the federal estate tax
attributable to your IRA. This deduction can help offset the
additional annual income tax. The IRD deduction is available
to all beneficiaries of your IRA, regardless of who actually paid
the estate tax.
If you would like to pass your IRA to a beneficiary without
its value being reduced by estate tax, you may wish to specify
in your will that non-IRA assets should be used to pay estate
taxes (so long as the marital deduction is not reduced). One
way to provide the needed cash to pay estate tax without
tapping your IRA is to purchase either a single life or
second-to-die life insurance policy. If you are over age 70½,
you may opt to use part or all of your Required Minimum
Distributions to pay the annual premiums. To further leverage
your dollars, you may consider implementing this strategy
within an Irrevocable Life Insurance Trust. Distributions
through the trust will be completely free of income and
estate taxes.
Clients should consult their tax advisor for matters involving
taxation and tax planning and their attorney for matters
involving trust and estate planning and other legal matters.
Professional Investment Management
You may wish to consider the services and advantages
provided to you and your heirs by professional investment
managers. Currently, you may have the expertise, inclination
and time to manage your own IRA investments. However,
you may at some point wish to reduce your day-to-day
involvement in the business of managing your account.
Or you may feel that your surviving spouse or other
beneficiaries should not be left with this demanding
task. They may not be equipped with the experience or
temperament to handle these responsibilities on a long-term,
ongoing basis. If you expect them to manage your accounts
themselves, who will be their advisors? Will you be creating
unforeseen conflict?
For example, if you employ a Credit Shelter Trust as part of
your estate plan, your surviving spouse is permitted to manage
the assets in the trust, even though the assets ultimately
belong to your heirs. This could create intergenerational
conflict that you would prefer to avoid.
Professional asset managers represent the full spectrum of
investment styles. Your Financial Advisor will work with
you or your beneficiaries to identify managers who meet the
investment risk parameters that you or they establish under
one of Morgan Stanley Smith Barney’s various advisory
programs.
Your Financial Advisor can also initiate a management search
for you, as well as provide up-to-date manager profiles and
performance data.
Morgan stanley Smith Barney 19
7. Beneficiary Distribution Rules
Beneficiary
Owner Dies BEFORE the
Required Beginning Date
Owner Dies AFTER the
Required Beginning Date
Spouse—Inherited IRA
Spouse’s Life Expectancy
Spouse’s Life Expectancy
Spouse—IRA Rollover
Permitted
Permitted
Nonspouse Beneficiary
Beneficiary’s Life Expectancy reduced by
1 each year is the default provision; fiveyear rule* is the optional election
Beneficiary’s Life Expectancy reduced
by 1 each year
Multiple Designated Beneficiaries
(i.e., individuals only)
Individual’s Life Expectancy if the account
is divided by December 31 of the year
after death; otherwise, life expectancy of
the oldest beneficiary
Individual’s Life Expectancy if the account
is divided by December 31 of the year
after death; otherwise, life expectancy of
the oldest beneficiary
Multiple Beneficiaries (includes individuals
and legal entities, such as trusts, estates,
charities or foundations)
If legal entities receive a single-sum
payment by September 30th of the year
after death, individuals may refer to
Multiple Designated Beneficiaries above;
otherwise, five-year rule*
If legal entities receive a single-sum
payment by September 30th of the year
after death, individuals may refer to
Multiple Designated Beneficiaries above;
otherwise, remaining term-certain period
of the IRA owner
Trust as Designated Beneficiary
Life Expectancy of oldest trust beneficiary
reduced by 1 each year
Life Expectancy of oldest trust beneficiary
reduced by 1 each year
Trust Not a Designated Beneficiary
Five-year rule*
Remaining term-certain period of the
IRA owner
Charity
Five-year rule*
Remaining term-certain period of the
IRA owner
Estate
Five-year rule*
Remaining term-certain period of the
IRA owner
*The five-year rule requires a beneficiary to deplete the IRA during a five-year period that begins on the December 31 following the death of the IRA holder. The entire
account must be distributed by the end of the fifth year.
20
Morgan Stanley Smith Barney IRA Distribution Manual
8. Life Expectancy Tables
Spousal Joint Life and Last Survivor Life Expectancy Table
AGES
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
39.4
38.6
37.7
36.8
35.9
35.1
34.3
33.4
32.6
31.8
31.1
30.3
29.5
28.8
28.1
27.4
26.7
26.1
25.4
24.8
24.3
23.7
23.2
22.7
22.2
21.8
21.3
20.9
20.6
20.2
19.9
19.6
19.4
19.1
18.9
18.7
18.5
18.3
18.2
18.0
17.9
17.8
17.7
17.6
17.6
17.5
39.4
38.5
37.6
36.7
35.9
35.0
34.2
33.3
32.5
31.7
30.9
30.1
29.4
28.6
27.9
27.2
26.5
25.8
25.2
24.5
23.9
23.4
22.8
22.3
21.8
21.3
20.9
20.5
20.1
19.7
19.4
19.1
18.8
18.5
18.3
18.1
17.9
17.7
17.5
17.4
17.3
17.1
17.0
16.9
16.9
16.8
39.3
38.4
37.5
36.6
35.8
34.9
34.1
33.2
32.4
31.6
30.8
30.0
29.2
28.4
27.7
27.0
26.3
25.6
24.9
24.3
23.7
23.1
22.5
22.0
21.4
20.9
20.5
20.0
19.6
19.3
18.9
18.6
18.3
18.0
17.7
17.5
17.3
17.1
16.9
16.7
16.6
16.5
16.4
16.3
16.2
16.1
39.3
38.4
37.5
36.6
35.7
34.8
34.0
33.1
32.3
31.5
30.6
29.8
29.1
28.3
27.5
26.8
26.1
25.4
24.7
24.0
23.4
22.8
22.2
21.6
21.1
20.6
20.1
19.6
19.2
18.8
18.4
18.1
17.8
17.5
17.2
16.9
16.7
16.5
16.3
16.1
16.0
15.8
15.7
15.6
15.5
15.4
39.2
38.3
37.4
36.5
35.6
34.8
33.9
33.0
32.2
31.4
30.5
29.7
28.9
28.1
27.4
26.6
25.9
25.2
24.5
23.8
23.1
22.5
21.9
21.3
20.8
20.2
19.7
19.3
18.8
18.4
18.0
17.6
17.3
17.0
16.7
16.4
16.2
15.9
15.7
15.5
15.4
15.2
15.1
15.0
14.9
14.8
39.2
38.3
37.4
36.5
35.6
34.7
33.8
33.0
32.1
31.3
30.4
29.6
28.8
28.0
27.2
26.5
25.7
25.0
24.3
23.6
22.9
22.3
21.6
21.0
20.5
19.9
19.4
18.9
18.4
18.0
17.6
17.2
16.8
16.5
16.2
15.9
15.6
15.4
15.2
15.0
14.8
14.6
14.5
14.4
14.3
14.2
39.1
38.2
37.3
36.4
35.5
34.6
33.8
32.9
32.0
31.2
30.3
29.5
28.7
27.9
27.1
26.3
25.6
24.8
24.1
23.4
22.7
22.0
21.4
20.8
20.2
19.6
19.1
18.6
18.1
17.6
17.2
16.8
16.4
16.0
15.7
15.4
15.1
14.9
14.7
14.4
14.3
14.1
13.9
13.8
13.7
13.6
39.1
38.2
37.3
36.4
35.5
34.6
33.7
32.8
32.0
31.1
30.3
29.4
28.6
27.8
27.0
26.2
25.4
24.7
23.9
23.2
22.5
21.8
21.2
20.6
19.9
19.4
18.8
18.3
17.8
17.3
16.8
16.4
16.0
15.6
15.3
15.0
14.7
14.4
14.2
13.9
13.7
13.5
13.4
13.2
13.1
13.0
39.1
38.2
37.2
36.3
35.4
34.5
33.6
32.8
31.9
31.0
30.2
29.3
28.5
27.7
26.9
26.1
25.3
24.6
23.8
23.1
22.4
21.7
21.0
20.3
19.7
19.1
18.5
18.0
17.5
17.0
16.5
16.0
15.6
15.2
14.9
14.5
14.2
13.9
13.7
13.4
13.2
13.0
12.9
12.7
12.6
12.4
39.1
38.1
37.2
36.3
35.4
34.5
33.6
32.7
31.8
31.0
30.1
29.3
28.4
27.6
26.8
26.0
25.2
24.4
23.7
22.9
22.2
21.5
20.8
20.1
19.5
18.9
18.3
17.7
17.2
16.7
16.2
15.7
15.3
14.9
14.5
14.1
13.8
13.5
13.2
13.0
12.8
12.5
12.4
12.2
12.0
11.9
39.0
38.1
37.2
36.3
35.4
34.5
33.6
32.7
31.8
30.9
30.1
29.2
28.4
27.5
26.7
25.9
25.1
24.3
23.6
22.8
22.1
21.3
20.6
20.0
19.3
18.7
18.1
17.5
16.9
16.4
15.9
15.4
15.0
14.5
14.1
13.8
13.4
13.1
12.8
12.6
12.3
12.1
11.9
11.7
11.5
11.4
39.0
38.1
37.2
36.2
35.3
34.4
33.5
32.6
31.8
30.9
30.0
29.2
28.3
27.5
26.6
25.8
25.0
24.2
23.4
22.7
21.9
21.2
20.5
19.8
19.1
18.5
17.9
17.3
16.7
16.2
15.6
15.1
14.7
14.2
13.8
13.4
13.1
12.7
12.4
12.2
11.9
11.7
11.4
11.3
11.1
10.9
39.0
38.1
37.1
36.2
35.3
34.4
33.5
32.6
31.7
30.8
30.0
29.1
28.3
27.4
26.6
25.8
24.9
24.1
23.4
22.6
21.8
21.1
20.4
19.7
19.0
18.3
17.7
17.1
16.5
15.9
15.4
14.9
14.4
13.9
13.5
13.1
12.7
12.4
12.1
11.8
11.5
11.3
11.0
10.8
10.6
10.5
39.0
38.0
37.1
36.2
35.3
34.4
33.5
32.6
31.7
30.8
29.9
29.1
28.2
27.4
26.5
25.7
24.9
24.1
23.3
22.5
21.7
21.0
20.2
19.5
18.8
18.2
17.5
16.9
16.3
15.7
15.2
14.7
14.2
13.7
13.2
12.8
12.4
12.1
11.7
11.4
11.1
10.9
10.6
10.4
10.2
10.1
39.0
38.0
37.1
36.2
35.3
34.3
33.4
32.5
31.7
30.8
29.9
29.0
28.2
27.3
26.5
25.6
24.8
24.0
23.2
22.4
21.6
20.9
20.1
19.4
18.7
18.0
17.4
16.7
16.1
15.5
15.0
14.4
13.9
13.4
13.0
12.6
12.2
11.8
11.4
11.1
10.8
10.5
10.3
10.1
9.9
9.7
38.9
38.0
37.1
36.2
35.2
34.3
33.4
32.5
31.6
30.7
29.9
29.0
28.1
27.3
26.4
25.6
24.8
23.9
23.1
22.3
21.6
20.8
20.1
19.3
18.6
17.9
17.3
16.6
16.0
15.4
14.8
14.3
13.7
13.2
12.8
12.3
11.9
11.5
11.1
10.8
10.5
10.2
9.9
9.7
9.5
9.3
Source: Internal Revenue Service, 2010
Morgan stanley Smith Barney 21
Spousal Joint Life and Last Survivor Life Expectancy Table (continued)
AGES
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
38.9
38.0
37.1
36.1
35.2
34.3
33.4
32.5
31.6
30.7
29.8
29.0
28.1
27.2
26.4
25.5
24.7
23.9
23.1
22.3
21.5
20.7
20.0
19.2
18.5
17.8
17.1
16.5
15.8
15.2
14.6
14.1
13.5
13.0
12.5
12.1
11.7
11.3
10.9
10.5
10.2
9.9
9.6
9.4
9.2
9.0
38.9
38.0
37.0
36.1
35.2
34.3
33.4
32.5
31.6
30.7
29.8
28.9
28.1
27.2
26.4
25.5
24.7
23.8
23.0
22.2
21.4
20.7
19.9
19.2
18.4
17.7
17.0
16.4
15.7
15.1
14.5
13.9
13.4
12.9
12.4
11.9
11.4
11.0
10.6
10.3
9.9
9.6
9.4
9.1
8.9
8.6
38.9
38.0
37.0
36.1
35.2
34.3
33.4
32.5
31.6
30.7
29.8
28.9
28.0
27.2
26.3
25.5
24.6
23.8
23.0
22.2
21.4
20.6
19.8
19.1
18.3
17.6
16.9
16.3
15.6
15.0
14.4
13.8
13.2
12.7
12.2
11.7
11.3
10.8
10.4
10.1
9.7
9.4
9.1
8.8
8.6
8.3
38.9
38.0
37.0
36.1
35.2
34.3
33.3
32.4
31.5
30.7
29.8
28.9
28.0
27.2
26.3
25.4
24.6
23.8
22.9
22.1
21.3
20.5
19.8
19.0
18.3
17.6
16.9
16.2
15.5
14.9
14.3
13.7
13.1
12.6
12.0
11.5
11.1
10.6
10.2
9.9
9.5
9.2
8.9
8.6
8.3
8.1
38.9
38.0
37.0
36.1
35.2
34.2
33.3
32.4
31.5
30.6
29.8
28.9
28.0
27.1
26.3
25.4
24.6
23.7
22.9
22.1
21.3
20.5
19.7
19.0
18.2
17.5
16.8
16.1
15.4
14.8
14.2
13.6
13.0
12.4
11.9
11.4
10.9
10.5
10.1
9.7
9.3
9.0
8.6
8.3
8.1
7.8
38.9
37.9
37.0
36.1
35.2
34.2
33.3
32.4
31.5
30.6
29.7
28.9
28.0
27.1
26.3
25.4
24.5
23.7
22.9
22.1
21.3
20.5
19.7
18.9
18.2
17.4
16.7
16.0
15.4
14.7
14.1
13.5
12.9
12.3
11.8
11.3
10.8
10.3
9.9
9.5
9.1
8.8
8.4
8.1
7.9
7.6
38.9
37.9
37.0
36.1
35.1
34.2
33.3
32.4
31.5
30.6
29.7
28.8
28.0
27.1
26.2
25.4
24.5
23.7
22.9
22.0
21.2
20.4
19.6
18.9
18.1
17.4
16.7
16.0
15.3
14.6
14.0
13.4
12.8
12.2
11.7
11.2
10.7
10.2
9.8
9.3
9.0
8.6
8.3
8.0
7.7
7.4
38.9
37.9
37.0
36.1
35.1
34.2
33.3
32.4
31.5
30.6
29.7
28.8
28.0
27.1
26.2
25.4
24.5
23.7
22.8
22.0
21.2
20.4
19.6
18.8
18.1
17.3
16.6
15.9
15.2
14.6
13.9
13.3
12.7
12.1
11.6
11.1
10.6
10.1
9.6
9.2
8.8
8.5
8.1
7.8
7.5
7.2
38.9
37.9
37.0
36.1
35.1
34.2
33.3
32.4
31.5
30.6
29.7
28.8
27.9
27.1
26.2
25.3
24.5
23.6
22.8
22.0
21.2
20.4
19.6
18.8
18.0
17.3
16.6
15.9
15.2
14.5
13.9
13.2
12.6
12.0
11.5
11.0
10.5
10.0
9.5
9.1
8.7
8.3
8.0
7.6
7.3
7.1
38.9
37.9
37.0
36.1
35.1
34.2
33.3
32.4
31.5
30.6
29.7
28.8
27.9
27.1
26.2
25.3
24.5
23.6
22.8
22.0
21.1
20.3
19.6
18.8
18.0
17.3
16.5
15.8
15.1
14.5
13.8
13.2
12.6
12.0
11.4
10.9
10.4
9.9
9.4
9.0
8.6
8.2
7.8
7.5
7.2
6.9
38.9
37.9
37.0
36.1
35.1
34.2
33.3
32.4
31.5
30.6
29.7
28.8
27.9
27.0
26.2
25.3
24.5
23.6
22.8
21.9
21.1
20.3
19.5
18.8
18.0
17.2
16.5
15.8
15.1
14.4
13.8
13.1
12.5
11.9
11.3
10.8
10.3
9.8
9.3
8.9
8.5
8.1
7.7
7.4
7.1
6.8
38.9
37.9
37.0
36.1
35.1
34.2
33.3
32.4
31.5
30.6
29.7
28.8
27.9
27.0
26.2
25.3
24.5
23.6
22.8
21.9
21.1
20.3
19.5
18.7
18.0
17.2
16.5
15.8
15.1
14.4
13.7
13.1
12.5
11.9
11.3
10.7
10.2
9.7
9.2
8.8
8.4
8.0
7.6
7.3
6.9
6.6
38.9
37.9
37.0
36.0
35.1
34.2
33.3
32.4
31.5
30.6
29.7
28.8
27.9
27.0
26.2
25.3
24.4
23.6
22.8
21.9
21.1
20.3
19.5
18.7
17.9
17.2
16.4
15.7
15.0
14.3
13.7
13.0
12.4
11.8
11.2
10.7
10.1
9.6
9.2
8.7
8.3
7.9
7.5
7.1
6.8
6.5
38.9
37.9
37.0
36.0
35.1
34.2
33.3
32.4
31.5
30.6
29.7
28.8
27.9
27.0
26.2
25.3
24.4
23.6
22.7
21.9
21.1
20.3
19.5
18.7
17.9
17.2
16.4
15.7
15.0
14.3
13.6
13.0
12.4
11.8
11.2
10.6
10.1
9.6
9.1
8.6
8.2
7.8
7.4
7.0
6.7
6.4
38.9
37.9
37.0
36.0
35.1
34.2
33.3
32.4
31.5
30.6
29.7
28.8
27.9
27.0
26.1
25.3
24.4
23.6
22.7
21.9
21.1
20.3
19.5
18.7
17.9
17.1
16.4
15.7
15.0
14.3
13.6
12.9
12.3
11.7
11.1
10.6
10.0
9.5
9.0
8.5
8.1
7.7
7.3
6.9
6.6
6.3
Source: Internal Revenue Service, 2010
22
Morgan Stanley Smith Barney IRA Distribution Manual
Uniform Lifetime Distribution Table
Age
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
Distribution Period
27.4
26.5
25.6
24.7
23.8
22.9
22.0
21.2
20.3
19.5
18.7
17.9
17.1
16.3
15.5
14.8
14.1
13.4
12.7
12.0
11.4
10.8
10.2
Age
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
Distribution Period
9.6
9.1
8.6
8.1
7.6
7.1
6.7
6.3
5.9
5.5
5.2
4.9
4.5
4.2
3.9
3.7
3.4
3.1
2.9
2.6
2.4
2.1
1.9
Source: Internal Revenue Service, 2010
Single Life Expectancy Table
Age
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
MULTIPLE
82.4
81.6
80.6
79.7
78.7
77.7
76.7
75.8
74.8
73.8
72.8
71.8
70.8
69.9
68.9
67.9
66.9
66.0
65.0
64.0
63.0
62.1
61.1
Age
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
MULTIPLE
60.1
59.1
58.2
57.2
56.2
55.3
54.3
53.3
52.4
51.4
50.4
49.4
48.5
47.5
46.5
45.6
44.6
43.6
42.7
41.7
40.7
39.8
38.8
Age
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
MULTIPLE
37.9
37.0
36.0
35.1
34.2
33.3
32.3
31.4
30.5
29.6
28.7
27.9
27.0
26.1
25.2
24.4
23.5
22.7
21.8
21.0
20.2
19.4
18.6
Age
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
MULTIPLE
17.8
17.0
16.3
15.5
14.8
14.1
13.4
12.7
12.1
11.4
10.8
10.2
9.7
9.1
8.6
8.1
7.6
7.1
6.7
6.3
5.9
5.5
5.2
Age
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111+
MULTIPLE
4.9
4.6
4.3
4.1
3.8
3.6
3.4
3.1
2.9
2.7
2.5
2.3
2.1
1.9
1.7
1.5
1.4
1.2
1.1
1.0
Source: Internal Revenue Service, 2010
Morgan stanley Smith Barney 23
Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Smith Barney Financial Advisors
do not provide tax or legal advice. 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 personal tax or legal advisors to understand the tax and related consequences of any actions or investments
described herein.
© 2010 Morgan Stanley Smith Barney LLC. Member SIPC.
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