Recent bank failures by Silicon Valley Bank and Signature Bank have raised concerns among some consumers regarding their retirement funds. However, safeguards exist which can help prevent losing your hard-earned savings.
The Federal Deposit Insurance Corporation provides coverage for bank deposits like savings accounts and certificates of deposit; it does not cover investments such as stocks and mutual funds, however.
401(k)s are not insured by the FDIC
Financial deposits insured by the Federal Deposit Insurance Corporation (FDIC) provide up to $250,000 of protection per depositor; however, retirement savings held in IRAs or other retirement plans don’t. While this might cause concern, safeguards exist depending on where and how these accounts are held.
401(k)s are defined contribution retirement plans that enable employees and employers to contribute tax-deferred dollars into individual account balances, with withdrawal options after retirement. Contributions made into 401(k)s do not incur income tax liability, while earnings are taxed as income upon withdrawal.
As well as tax withdrawal rules, 401(k) accounts also come with other restrictions that limit how much can be withdrawn in any 12-month period and there may also be investments restrictions which can cause difficulties for those nearing retirement who depend on these accounts for living expenses.
Due to these restrictions, 401(k)s are typically not insured by the FDIC; however, there are other retirement savings vehicles which are protected – for instance the National Credit Union Administration Investment Fund (NCUSIF) offers deposits up to $250,000. NCUSIF provides coverage both funds in savings accounts as well as assets within them as well as cooperative accounts that don’t fall under bank rules such as credit unions.
People saving for retirement using an Individual Retirement Account (IRA) typically invest through investment institutions rather than banks, with their investments often consisting of securities and speculative financial products like exchange-traded funds (ETFs), mutual funds or stocks through these accounts – although these accounts may provide great ways of growing retirement savings, they aren’t FDIC insured and should therefore only be used if necessary.
Silicon Valley Bank and Signature Bank collapsed earlier this year, raising serious concerns for retirement accounts held with them. Although these bank failures were devastating, the FDIC quickly intervened to reimburse depositors and pay creditors, so depositors are safe with access to their accounts.
Keep in mind that 401(k)s are not protected by FDIC insurance and many retirement accounts do not fall under NCUSIF/SIPC coverage. In addition, investors must understand all fees associated with their 401(k) and other retirement savings accounts; many fees may be hidden while some could even be illegal. Over the last seven years, the Department of Labor has averaged 14 criminal indictments and over 1,100 civil cases related to violations in 401(k), recovering over $50 million as a result.
401(k)s are insured by the National Credit Union Administration
When saving for retirement, you want to know your savings are secure. Investing in 401(k), IRA and other retirement accounts can help ensure this occurs; many are surprised to discover they’re not insured by the Federal Deposit Insurance Corporation (FDIC), although securities investor protection corporations or similar bodies often cover them instead of FDIC coverage; that doesn’t mean your investments are at risk though as FDIC only covers bank deposits like savings accounts and certificates of deposit; so if your 401(k) account is held within an FDIC-insured bank, it will be insured up to $250,000.
Increase your coverage by opening additional accounts at the same institution, or moving funds between deposit accounts. Generally speaking, the FDIC only insures up to $250,000 per person per bank; however if you open joint accounts, this coverage could rise as far as $500,000. Unfortunately, the FDIC can only insure deposit accounts such as checking and savings accounts – not investment ones like 401(k)s or IRAs managed by employers – but government regulations ensure that your investments for those accounts must remain separate trusts from your employer accounts and their management companys – unlike what many banks provide in terms of coverage for these investment products.
The National Credit Union Administration insures 401(k)s and other retirement savings at member banks under its supervision. As an agency of the federal government, NCUA stands behind its actions with full faith and credit of the US Government, meaning in the event of bank failure it will pay out your money just like FDIC does.
NCUA insures not only 401(k)s but also IRAs, KEOGH accounts and Revocable Trust accounts up to $250,000. Each is tax-exempt and insured up to this maximum limit. In addition, you can open Revocable Trusts with them as well.
Both the Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) insure bank deposits, with NCUA providing similar protections to that offered by FDIC; up to $250,000 of coverage per individual at each federally insured credit union is offered through its Share Insurance Fund; this fund also insures individual IRA and KEOGH accounts separately up to $250,000.
If you need assistance protecting your 401(k), consult a qualified financial planner. They can assist in diversifying investments and creating an investment strategy designed to maximize returns. Alternatively, contact your employer’s human resources department for more details about your specific plan.
401(k)s are insured by the Securities Investor Protection Corporation
SIPC stands in place to safeguard investment assets held by broker-dealers in case they become subject to theft or failure – an organization funded by SIPC members’ contributions, SIPC reimburses investors who experience money losses as a result of broker theft or failure; their insurance is particularly useful as many employees’ 401(k) accounts are invested with brokerage firms that could be affected by recent economic instability.
There are safeguards in place to help keep your retirement accounts safe. Government regulations require that 401(k)s and other employer-sponsored retirement accounts are kept separate from company assets, which helps minimize embezzlement risks by management or employees. Furthermore, over the past seven years the Department of Labor has successfully recovered an average of $14 million per case related to 401(k) fraud.
While some may worry that their retirement accounts might be at risk in an economic collapse, most are relieved to learn they’re protected. Both the Federal Deposit Insurance Corp (FDIC) and National Credit Union Administration (NCUA) offer safety for checking and savings accounts – these do not however cover investments such as mutual funds or stocks which often make up key parts of a 401(k).
The FDIC provides deposit insurance on certain types of accounts at banks insured by them, such as CDs, money market accounts and traditional IRAs. Although it does not cover 401(k) plans themselves directly, some people choose to open accounts at banks insured by the FDIC that offer this protection up to $250,000.
Most 401(k) accounts containing self-directed investments do not qualify for FDIC coverage due to not residing within traditional or money market accounts insured by the FDIC; however, if you’ve established an individual 401(k) with TD Ameritrade’s brokerage accounts then SIPC coverage up to $500k can be provided.