When it comes to your individual retirement account, you have lots of options. The Internal Revenue Service puts few restrictions on the types of investments you can put in your IRA, but if safety is your primary concern, an IRA share account at a National Credit Union Administration member institution is a good option. An IRA share account is an individual retirement account that holds credit union shares exclusively.
An IRA share account at a credit union is similar to holding a passbook savings account in your IRA at a bank. The primary difference is in terminology. Unlike most banks, which are for-profit corporations owned by private investors, credit unions are non-profit organizations owned by their members. Banks offer deposit accounts, such as passbook savings accounts. Credit unions offer share accounts which fulfill essentially the same function, but there is a significant difference in terminology. When a credit union members don't make a deposits, they buy shares. While deposits at a bank might earn interest, shares at a credit union earn dividends.
All IRAs are custodial or trust accounts. When you open an IRA share account, your credit union acts as the IRA custodian. You can use a share account for either a traditional IRA or a Roth IRA. All of the same benefits that are available to any other IRA, such as tax-deferred growth of investments, are available with a IRA share account. All the same IRA restrictions, such as early withdrawal penalties, apply to IRA share accounts.
Share accounts at credit unions are insured by the National Credit Union Administration for up to the maximum allowed by law. As of 2012 the maximum amount was $250,000 per ownership account type per depositor. IRA share accounts represent a different ownership account type than regular share accounts, so you could have up to $250,000 in your regular account and an additional $250,000 in your IRS share account at the same credit union, and both accounts would be fully insured by the NCUA.
Credit union shares are among the safest investments you can put into your IRA because of the federal insurance provided by the NCUA. No insured savings have ever been lost by members of a NCUA member credit union. Because share accounts are considered to be demand deposits, interest rates offered on these accounts are usually low, comparable to rates paid by passbook savings accounts at banks. Credit unions typically also offer certificates of deposit that provide the same level of safety with a higher yield than a share account. If you are willing to assume additional risk you might obtain greater returns by investing your IRA dollars in other types of securities, such as stocks, bonds or mutual funds.
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- National Credit Union Administration: Your Insured Funds
- Internal Revenue Service: Publication 590, Individual Retirement Arrangements
- State of Wisconsin Department of Financial Institutions: Differences between Banks, Credit Unions and Savings Institutions
- MyCreditUnion.gov: Credit Union and Bank Interest Rate Comparison
- PrimeSource Credit Union: IRA Share Account