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 months, several high-profile banks have encountered financial difficulties, leading to concerns about the safety of individuals’ retirement accounts. The collapse of these banks has caused uncertainty and fear among many savers, who are rightfully worried about the security of their hard-earned money.

While the recent bank failures may seem alarming, it is important to understand that most retirement accounts are protected by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). These government entities provide deposit insurance for up to $250,000 per depositor, per insured bank or credit union. This means that in the event of a bank failure, your retirement savings are generally safe and secure.

Additionally, it is crucial to diversify your retirement savings across multiple financial institutions and investment vehicles. By spreading out your money, you can mitigate the risk of losing a significant portion of your savings in the event of a bank failure. Consider investing in a mix of stocks, bonds, and other assets to ensure that your retirement accounts are not overly concentrated in any single institution.

Another important consideration is to stay informed about the financial health of your bank or credit union. Keep an eye on their financial statements, ratings from independent agencies, and any news about their stability. It is also advisable to consult with a financial advisor who can provide guidance on the safety and security of your retirement accounts.

In the event of a bank failure, the FDIC or NCUA will typically work to transfer insured deposits to a healthy institution, ensuring that depositors have access to their funds. While this process may cause temporary inconvenience, it ultimately protects savers from losing their money.

In conclusion, while the recent bank failures may be cause for concern, there is generally no need to panic about the safety of your retirement accounts. Most accounts are protected by government insurance, and taking proactive steps such as diversifying your savings and staying informed about the financial health of your bank can further safeguard your retirement funds. If you have any concerns about the security of your accounts, consider speaking with a financial professional who can offer personalized advice and reassurance.