FDIC Insurance on Certain Retirement Accounts

Consumers often think of money as a median of exchange and insurance as a protection for something deemed to be of value, in two different perspectives.

As consumers, we have insurance coverage for our money when we deposit it in a financial institution that has the letters FDIC displayed. The letters FDIC stand for Federal Deposit Insurance Corporation. FDIC is an affiliate of the United States government.

During the Great Depression, thousands of banks failed, and businesses and families across America lost money they had deposited in those banks. The Great Depression gave rise to the FDIC. Congress created the FDIC to make sure when a bank fails that all of its customers get their deposits back, including earned interest up to the insurance limits under the federal law. FDIC boasts that no depositors have lost a single cent of insured money falling within compliance of the federal law.

“Customers of financial institutions should review their accounts regularly to ensure that their deposits are not above the insured limit for that account,” says Dr. Bernice Wilson, an urban resource management specialist with the Alabama Cooperative Extension System. “The best way to determine if our money is safe is to call the FDIC’s toll-free hotline at (877) 275-3342,” she says.

FDIC provides insurance coverage up to $100,000 for your deposits at one bank. Consumers wanting to be sure their deposits are protected under the FDIC coverage, should visit the FDIC Web site at http://www.fdic.gov/deposit/deposits/ and access their interactive Electronic Deposit Insurance Estimator (EDIE). It allows customers to calculate insurance coverage of their accounts. While at this site, customers also can generate a printed report that lets them know if their deposits are fully insured.

Federal law provides protection to account holders of certain retirement accounts up to $250,000. Deposits in these retirement accounts must be owned by one person, and only that person’s name should be listed on the retirement account. FDIC has placed these retirement account deposits in the following categories:
• All types of IRAs, including traditional IRAs, Roth IRAs, Simplified Employee Pension (SEP) IRAs and Savings Incentive Match Plans for Employees (SIMPLE) IRAs.

• All Section 457 deferred compensation plan accounts, such as eligible deferred compensation plans provided by state and local governments regardless of whether they are self-directed.

• Self-directed defined contribution plan accounts, such as self-directed 401(k) plans, self-directed SIMPLE held in the form of 401(k) plans, self-directed defined contribution money purchase plans and self-directed defined contribution profit-sharing plans.

• Self-directed Keogh plan accounts (or H.R. 10 plan accounts) designed for self-employed individuals.

The FDIC defines the term "self-directed" to mean that participants have the right to direct how their money is invested and that the deposits be placed at an FDIC-insured bank.

All retirement accounts listed above owned by the same person in the same FDIC-insured bank are added together and the total is insured up to $250,000.

Consumers can go to the Electronic Deposit Insurance Estimator (EDIE) http://www.fdic.gov/edie/ and calculate their FDIC insurance coverage for each FDIC-insured bank where they have deposit accounts. EDIE lets them know in a printable report for each bank whether their deposits are within or exceed coverage limits.

According to FDIC, naming beneficiaries on a retirement account does not increase deposit insurance coverage. Such accounts that fall within this guideline are Coverdell Education Savings Accounts (formerly known as an Education IRAs), Health Savings Accounts and Medical Savings Accounts. These accounts are not included in the ownership category and are not eligible for the increased coverage limit. Also, accounts established under section 403(b) of the Internal Revenue Code (annuity contracts for certain employees of public schools, tax-exempt organizations and ministers) are not eligible for the $250,000 coverage limit.

Additionally, defined-benefit plans (benefits predetermined by an employee's compensation, years of service, and age) are not eligible for the $250,000 coverage limit.

For more information on Federal Deposit Insurance Corporation insured deposits on certain retirement accounts, visit http://www.fdic.gov/deposit/deposits/insured/ownership2.html#retirement.

For Federal Deposit Insurance Corporation insurance basics, visit http://www.fdic.gov/deposit/deposits/insured/basics.html.

Source: Bernice B. Wilson, urban resource management specialist, Alabama Cooperative Extension System, (256) 372-4969.

Posted by dreynold at October 2, 2008 03:47 PM | TrackBack