Is My IRA Insured?
You can tailor your individual retirement account to best meet your investment and retirement needs. While the Internal Revenue Service prohibits investing in life insurance or collectibles, you can put just about any other kind of investment in your IRA. Some investments can be quite risky, while others involve little risk. Some custodian and trustees even offer insured IRA accounts.
When it comes to your IRA, the key word is "account." Your IRA is not a particular type of investment; it is a type of account. You can open an IRA account at different types of financial institutions, including banks, credit unions, insurance companies, mutual fund companies and investment brokerage firms. The type of financial institution and the investments you choose determine whether your IRA is insured.
The Federal Deposit Insurance Corporation covers deposits at member banks. If your IRA custodian or trustee is an FDIC-member bank, and the investments in your IRA are depository products insured by the FDIC, such as certificates of deposit, your IRA is insured. There are some limitations on FDIC insurance. As of 2012, the agency insures up to $250,000 for all of your retirement accounts, including traditional and Roth IRAs at the same insured bank. This is in addition to the $250,000 in FDIC insurance on deposits you hold at the same bank in other ownership categories, such as your regular checking account or non-IRA certificates of deposit.
The National Credit Union Association provides insurance for credit union accounts that is similar to FDIC insurance. The maximum insurance on NCUA accounts is $250,000 per account type. For example, you can be insured for up to $250,000 for funds deposited in your regular share account, and your individual retirement account at the same credit union will be insured separately for an additional $250,000.
If your IRA custodian is an investment brokerage firm, your investments are covered by the Securities Investor Protection Corporation. SIPC insurance doesn't work the same way as FDIC insurance. It only kicks in if your brokerage firm fails and securities that should belong to investors go missing. This insurance does not cover you against market loss of any security you hold in your IRA.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.