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IRA has separate deposit insurance limit

Don Taylorq_v2.gifDear Dr. Don,
I want to roll over a 401(k) into an IRA account with a bank so I can construct a CD ladder in the retirement account. I have about $150,000 to roll over. Would it be better to divide this money between two banks? I was thinking of FDIC insurance, and I'm afraid that if I have an additional savings account in the same bank, it might be getting too close to the insurance limit.
-- Jan Jumbled

a_v2.gifDear Jan,
Certain retirement accounts, including individual retirement accounts, held at a depository institution have a separate $250,000 per owner Federal Deposit Insurance Corp. insurance limit. That $250,000 limit stays in place even after the insurance limit for nonretirement accounts reverts back to $100,000 per owner of nonretirement accounts at a depository institution Jan. 1, 2014.

The FDIC provides separate coverage for deposits held in the different account ownership categories. The ownership categories (found on the FDIC Web site) are listed below:

FDIC Deposit Insurance Coverage Limits (Through December 31, 2013)

  • Single Accounts (owned by one person) $250,000 per owner.
  • Joint Accounts (two or more persons) $250,000 per co-owner.
  • Certain Retirement Accounts (includes IRAs) $250,000 per owner.
  • Revocable Trust Accounts $250,000 per owner per beneficiary up to 5 beneficiaries (more coverage is available with 6 or more beneficiaries subject to specific limitations and requirements) Corporation, Partnership and Unincorporated Association Accounts $250,000 per corporation, partnership or unincorporated association.
  • Irrevocable Trust Accounts $250,000 for the non-contingent, ascertainable interest of each beneficiary Employee Benefit Plan Accounts $250,000 for the non-contingent, ascertainable interest of each plan participant Government Accounts $250,000 per official custodian.

But the easiest way to sort through whether or not your deposit is insured is to use EDIE, the FDIC's Electronic Deposit Insurance Estimator.

Make sure to do the rollover as a trustee-to-trustee, or direct, rollover in which the funds go directly into your 401(k). That way, your former employer isn't required to withhold taxes. (If the employer cuts a check to you, it's subject to mandatory withholding.)

See IRS Publication 590, Individual Retirement Arrangements, for complete information on the direct rollover option.

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