What to Know About Increased FDIC Insurance for Retirement Accounts?

For the first time in more than 25 years, federal deposit insurance coverage, which protects against loss if a banking institution fails, got its limit raised by Congress. However, the higher insurance limit only applies to certain kinds of retirement accounts that people may have at banks and savings associations insured by the Federal Deposit Insurance Corporation (FDIC) and at credit unions insured by the National Credit Union Administration (NCUA).

The information for bank customers to know what’s new and what hasn’t changed is the necessity of FDIC.

1. Certain retirement accounts at federally insured banks and savings associations soon will be insured up to $250,000, up from $100,000 previously. Primarily to traditional and Roth IRAs (Individual Retirement Accounts), applies the higher insurance coverage. Also included are self-directed Keogh accounts, “457 Plan” accounts for state government employees, and employer-sponsored “defined contribution plan” accounts that are self-directed, which are primarily 401(k) accounts. In general, the consumer chooses how and where the money is deposited defines self-directed.

Under the FDIC’s new rules, which take effect on April 1, 2006, all deposits at a single banking institution that are held in this broad category of retirement accounts are added together and the total is insured up to $250,000, separately from any other deposit accounts you may have at the same institution.

With FDIC coverage for retirement accounts raised to $250,000, more Americans who rely on banking institutions for safety and easy access will know that more of their money for retirement, if their financial institution were to fail, will be completely protected. There’s also the added convenience for people who, previously, might have gone to more than one institution to get full coverage of retirement deposits of more than $100,000.

2. Other deposit accounts are still insured up to at least $100,000. However, there are ways to qualify for more than the basic coverage at one insured institution, as before.

For example, checking and savings accounts held jointly with other people; business accounts; and employer-sponsored pension or profit-sharing plans-each qualify for separate insurance coverage of $100,000 (as much as $400,000 combined) are the four distinct categories of accounts-checking and savings accounts in your name alone that are not retirement accounts.

In addition, trust accounts may qualify for separate insurance coverage of $100,000 per beneficiary (not per depositor) if certain conditions are met. And remember, under the new rules, your self-directed retirement accounts at the same institution are insured by the FDIC to $250,000 separately from any other accounts you may have there. This can be confusing, so to learn more about how to qualify for additional insurance coverage contact the FDIC as listed below.

3. The insurance limits have risen in the present, in the 2011, which is definite news. The new law establishes a method for authorizing an increase in the insurance limits on all deposit accounts (including retirement accounts) every five years starting in 2011 and based, in part, on inflation. Otherwise, just as described, your accounts will continue to be insured.

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