Ella Walter
Retirement plans are not insured by the Federal Deposit Insurance Corporation (FDIC). However, certain types of deposits held within a plan may be eligible for coverage. FDIC insurance covers savings accounts, insured money market accounts, and certificates of deposit (CDs). The FDIC does not insure securities, mutual funds, or similar investments offered by banks and thrift institutions. Retirement accounts in banks and credit unions are insured like any other account, with a $250,000 limit per depositor per institution. If you want to ensure your 403(k) plan is insured, you can choose FDIC-insured bank products such as CDs or money market accounts, allowing that portion of your 403(k) to obtain FDIC coverage.
| Characteristics | Values |
|---|---|
| FDIC insurance limit | $250,000 per depositor per institution |
| FDIC-insured accounts | Savings accounts, insured money market accounts, and certificates of deposit (CDs) |
| FDIC-insured retirement accounts | Individual Retirement Accounts (IRAs), including traditional, Roth, Simplified Employee Pension (SEP) IRAs, and Savings Incentive Match Plans for Employees (SIMPLE) IRAs |
| Self-directed defined contribution plan accounts | Self-directed 401(k) plans, SIMPLE IRAs held in the form of a 401(k) plan, self-directed defined contribution profit-sharing plans, self-directed Keogh plan accounts (or H.R. 10 plan accounts), and Section 457 deferred compensation plan accounts |
| Non-FDIC-insured investments | Mutual funds, annuities, and other non-deposit investment products |
| Protection from creditors and lawsuits | 401(k) plans are generally protected from creditors and related lawsuits, safeguarding them from garnishment or seizure |
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What You'll Learn
Understand the FDIC insurance limits
The Federal Deposit Insurance Corporation (FDIC) provides insurance coverage to certain types of accounts held at FDIC member banks. FDIC insurance covers retirement accounts in which plan participants have the right to direct how the money is invested. The amount of FDIC insurance coverage depends on the FDIC ownership category, which generally refers to the manner in which you hold your funds at the bank. FDIC ownership categories include single accounts, certain retirement accounts, employee benefit plan accounts, joint accounts, trust accounts, business accounts, and government accounts.
Single accounts owned by the same person at the same bank are added together and insured up to $250,000. Accounts with one or more owners that name beneficiaries are insured as trust deposits, assuming certain requirements are met. Trust accounts are deposits held by one or more owners under either an informal revocable trust or a formal revocable trust. Informal revocable trusts, often called payable on death (POD) or In Trust For (ITF) accounts, are created when the account owner signs a deposit account agreement directing the bank to transfer the funds to named beneficiaries upon the owner's death. Formal revocable trusts, often called living or family trusts, are written trusts created for estate planning purposes, where the owner controls the deposits and other assets during their lifetime.
For trust accounts, the FDIC uses the formula: Number of Owners x Number of Beneficiaries x $250,000 = Amount Insured. The coverage limit for trust accounts will not exceed $1,250,000 as of April 1, 2024. Employee benefit plan deposits that do not qualify for pass-through coverage, such as health and welfare plans, are insured up to $250,000 per bank. Deposits owned by corporations, partnerships, and unincorporated associations, including for-profit and not-for-profit organizations, are also insured under FDIC coverage.
While the FDIC does not insure retirement plans, certain types of deposits held within a plan may be eligible for coverage. Self-directed defined contribution plan accounts, including self-directed 401(k) plans, may be insured if the bank is an FDIC-insured institution. Employees may have the option to choose FDIC-insured bank products, such as certificates of deposit (CDs) or money market accounts, for a portion of their 401(k), allowing that portion to obtain FDIC coverage. CDs purchased from brokerage firms may also have FDIC protection if the broker bought the CD from an eligible bank.
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Choose FDIC-insured bank products
While the Federal Deposit Insurance Corporation (FDIC) does not insure retirement plans, certain types of deposits held within a plan may be eligible for coverage. These include Individual Retirement Accounts (IRAs), including traditional, Roth, Simplified Employee Pension (SEP) IRAs, and Savings Incentive Match Plans for Employees (SIMPLE) IRAs. Self-directed defined contribution plan accounts, including self-directed 401(k) plans, SIMPLE IRAs held in the form of a 401(k) plan, self-directed defined contribution profit-sharing plans, self-directed Keogh plan accounts (or H.R. 10 plan accounts) designed for self-employed individuals, and Section 457 deferred compensation plan accounts are also covered.
FDIC insurance covers traditional deposit accounts, and depositors do not need to apply for it. Coverage is automatic whenever a deposit account is opened at an FDIC-insured bank or financial institution. If you are interested in FDIC deposit insurance coverage, ensure that your funds are placed in a deposit product at the bank.
FDIC-insured bank products include certificates of deposit (CDs) and money market accounts. CDs sold through brokerage firms may have FDIC coverage if the broker purchased the underlying CD from an FDIC-insured bank.
FDIC insurance covers retirement accounts in which plan participants have the right to direct how the money is invested, including the ability to direct that deposits be placed at an FDIC-insured bank. If a plan has deposit accounts at a particular insured bank as its default investment option, the FDIC deems the plan to be self-directed for insurance coverage purposes.
The amount of FDIC insurance coverage you may be entitled to depends on the FDIC ownership category, which refers to the manner in which you hold your funds at the bank. FDIC ownership categories include single accounts, certain retirement accounts, employee benefit plan accounts, joint accounts, trust accounts, business accounts, and government accounts. The coverage limit for single accounts owned by the same person at the same bank is $250,000. Accounts with one or more owners that name beneficiaries are insured as trust deposits, assuming certain requirements are met. Trust accounts include informal revocable trusts, formal revocable trusts, and irrevocable trusts.
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Monitor your accounts
Monitoring your 403(k) account is an important part of ensuring your retirement savings are on track and protected. Here are some steps to help you monitor your 403(k) account effectively:
Locate All Your Retirement Accounts
If you've changed jobs multiple times, your retirement savings may be scattered across different 403(k) plans or other tax-deferred savings plans. Take the time to identify and locate all your old plans. Contact your former employers or the financial firms associated with your previous 403(k) plans to gather information about your accounts.
Consolidate and Track Your Accounts
Consider consolidating your retirement savings into one or a few accounts to make monitoring easier. You can roll over your old 403(k) plans into an Individual Retirement Account (IRA) or your current employer's 403(k) plan, if permitted. Online tracking services can help monitor your accounts in one place, notifying you of any necessary adjustments.
Regularly Review Account Activity
Periodically review your 403(k) accounts to ensure no unauthorized withdrawals are being made and that your contributions are being deposited correctly and regularly. This is especially important if your employer is facing financial difficulties, as your funds may be at risk.
Stay Informed About Your Protection
Understand the protection your 403(k) account has. While your funds are generally protected if your employer goes bankrupt, this may not be the case for all plan types. Know the steps to take if your employer is no longer operating, such as using the Abandoned Plan database hosted by the Department of Labor to locate your lost plan.
Monitor Your Investments
Keep an eye on your investments within your 403(k) account. Review your portfolio regularly to ensure it aligns with your risk tolerance, time horizon, and financial goals. Diversification is essential to managing risk, so consider adjusting your investments if they seem off-balance.
By actively monitoring your 403(k) accounts, you can ensure your retirement savings are secure and working for you effectively.
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Understand the difference between FDIC and SIPC insurance
While the Federal Deposit Insurance Corporation (FDIC) and the Securities Investor Protection Corporation (SIPC) have similar functions—protecting consumers' assets—there are some crucial differences.
The FDIC is an independent agency within the US government that provides insurance to protect consumers' assets held in banks or savings associations. FDIC insurance protects assets in banks or savings associations. If an FDIC-insured bank or savings association fails, depositors receive reimbursement up to the limit of the insured balance in their accounts, per depositor for each insured category. FDIC insurance covers depositors of insured banks and investigates complaints. FDIC-insured institutions are considered a better choice for holding cash since, in the event of a bank failure, your funds are restored quickly and you won’t need to file any claims or take any action.
The SIPC, on the other hand, is a non-profit organisation that works to restore customers' cash and securities left in the hands of bankrupt or otherwise financially troubled brokerage firms. The SIPC protects consumers' brokerage account assets and has no authority to investigate complaints or regulate its members. The SIPC protects investors only against brokerage firm failure. The SIPC does not bail out consumers who lose money due to stock market fluctuations, poor investment advice, or the purchase of worthless stocks. The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash.
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Verify your credit union's insurance
To verify your credit union's insurance, you must first understand the type of insurance coverage your credit union offers. Credit unions in the United States are generally insured by either the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Share Insurance Fund (NCUSIF).
The FDIC is a United States government corporation supplying deposit insurance that protects against the loss of deposits if a bank or credit union fails. FDIC insurance does not cover all types of accounts, so it is important to understand which coverage applies to your assets. Retirement plans, for example, are generally not insured by the FDIC. However, certain types of deposits held within a plan may be eligible for coverage, such as Individual Retirement Accounts (IRAs).
The NCUSIF, established by Congress in 1970, provides coverage for members of federally insured credit unions, protecting them against losses if the credit union fails. Each member of a federally insured credit union has at least $250,000 in total coverage for share accounts. NCUSIF coverage is similar to the coverage provided by the FDIC. Credit union members do not need to apply for share insurance coverage as it is provided automatically when they join a federally insured credit union.
To verify that your credit union is federally insured by the NCUSIF, look out for the official NCUA insurance sign, which must be prominently displayed at each teller station and where insured account deposits are normally received in its principal place of business and in any of its branches. You can also contact your credit union directly and ask for confirmation of their insurance coverage.
In addition to the above, some credit unions may have specific insurance requirements for certain services. For example, some credit unions may require you to have full comprehensive and collision insurance on collateral loans, such as auto, boat, or RV loans. In such cases, you may be required to provide a copy of your insurance declaration page showing you have full coverage on the collateral, with the credit union listed as the lien holder or loss payee.
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Frequently asked questions
FDIC stands for Federal Deposit Insurance Corporation, an independent federal agency created by Congress to insure bank deposits.
Most 403(k) plans are not FDIC-insured. However, some plans offer investment options that are FDIC-insured.
You can use the FDIC's Electronic Deposit Insurance Estimator tool to check if your money is federally insured.
FDIC insurance covers up to $250,000 per depositor per institution. Retirement accounts in banks and credit unions are insured just like any other account.
Some employer plans offer products from insurance companies that may provide protection in the event of a market crash, often in the form of an annuity.
