The recent failures of Silicon Valley Bank and Signature Bank rattled people with cash deposits at banks. But what about retirement account holders? Do they have reason to fear for their 401(k) and IRAs nest eggs if their brokerage, mutual fund company or plan provider fails?

Cory, do people need to be worried about their retirement accounts failing like a bank?
I’m not going to flat out say “no,” as situations vary, but for the most part, general retirement accounts are safe. Just as cash accounts held at banks insured by the Federal Deposit Insurance Corporation (FDIC) are protected (up to $250,000 per depositor per bank), there are safeguards in place for owners of retirement accounts.

Does the FDIC help cover retirement accounts as well as bank accounts?

It can, as some 401(k) and IRA plans include deposits products such as savings, checking accounts and CD, thus they would cover this part of an investment. But the FDIC only covers parts of your investments that are related to the bank industry.

So, who protects other retirement savings products?

Fortunately, there is a safety net for money you have invested in financial markets made up by public and private financial regulators. These include the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC).

Are there caps to what will be covered like the FDIC only covers up to $250,000 for a bank account?

Yes, as the FDIC does with deposit insurance, the SIPC imposes dollar limits on its investor protection: Each customer account is insured up to $500,000 for securities and cash (which includes a $250,000 limit for cash only).

What about a Bernie Maydoff type scam?

These are very unfortunate, and there are bad actors out there, so it is important to NEVER write a check to the advisor. It needs to be written directly to the investment company or a holding firm like TD Ameritrade so things like this can’t happen. But if a brokerage firm does go under, which is very rare, and there was no foul play, if the assets are registered in your name, everything you have should still be there and can be transferred.

What if your company goes bankrupt, what happens to your 401(k)?
If you have a 401(k) through a company and it files for bankruptcy, your assets are protected by the Employee Retirement Income Security Act, or ERISA. This federal law requires that retirement plans adequately fund promised benefits and that retirement plan assets be kept separate from the sponsoring company’s business assets….(read more)

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Should you be worried about your retirement accounts with these bank failures?

In recent years, there have been several high-profile bank failures that have raised concerns about the safety of retirement accounts. With the collapse of big-name banks and the subsequent loss of millions of dollars in investor funds, many are left wondering if their hard-earned savings are at risk.

The truth is, while bank failures can be concerning, there are safeguards in place to protect retirement accounts. The Federal Deposit Insurance Corporation (FDIC) insures bank deposits up to a certain amount, currently set at $250,000 per depositor, per insured bank. This means that if your retirement account is held at a bank that is FDIC-insured, your funds are protected up to this limit.

Furthermore, retirement accounts such as 401(k)s and IRAs are typically held in custody by a separate financial institution, such as a brokerage firm, rather than the bank where the funds are invested. This means that even if the bank itself were to fail, the retirement account would be unaffected.

It’s also important to note that not all banks are at risk of failure. Many smaller, community banks have strong financial positions and are not at risk of going under. It’s always a good idea to research the financial health of any bank where you have a retirement account, and to spread your funds across multiple institutions to maximize your FDIC insurance coverage.

That being said, it’s natural to feel concerned about the safety of your retirement accounts in the face of bank failures. The best course of action is to stay informed about the financial health of the banks where your funds are deposited, and to make use of FDIC insurance to protect your savings.

It’s also a good idea to regularly review your retirement accounts and make any necessary adjustments to ensure that your investments are diversified and aligned with your long-term financial goals.

In conclusion, while bank failures can be worrisome, there are measures in place to protect retirement accounts. By staying informed, diversifying your investments, and taking advantage of FDIC insurance, you can help ensure the safety and security of your retirement savings.