Some clients have called me about moving their money from one bank to another to protect their funds. I have warned them to be careful about moving their money if the retirement fund is an IRA.
Funds may be transferred directly from one trustee to another (a "trustee to trustee" transfer) as many times as the owner wishes, but if the funds are withdrawn by the owner and then redeposited in another institution, this constitutes a rollover, and more than one rollover a year is subject to a penalty.
Up to $260,000 of IRA funds per bank is protected by the Federal Deposit Insurance Corporation, and IRAs in brokerage houses are protected up to $500,000 by the Securities Invest Protection Corp. (SIPC). The SIPC protects the investor if the brokerage house becomes insolvent, but not if the value of the account goes down.
The protection for non-IRA funds in banks remains at $100,000 for the time being.
In addition to regular IRAs, the insurance protection applies to Roth IRA, SEP IRAs, SIMPLE IRAs, and some self-directed 401(k) plans. If someone has both his or her own IRA and an inherited IRA at a bank, they are each insured for $250,000. The insurance coverage for these retirement benefits is separate from the coverage for regular deposits.
If you withdraw IRA funds, you have sixty days to roll over those funds into another bank. If you do more than one rollover in a year, the additional rollovers constitute ordinary income and the funds are no longer treated as IRA funds.
If you have more retirement funds in a particular bank than will be covered by insurance, and you decide to transfer, arrange for the bank to transfer the excess funds directly to the other bank. This is not a rollover, and you may have as many transfers in a year as you wish.
I am as shocked as you are about what has been happening in the financial world. Suddenly, highly-paid executives discover that investments are overvalued on their companies' books, and their companies are out of business. It would seem that they could have presided over the demise of their businesses for less-princely salaries.
Call us if you have questions about the taxation of IRAs or other benefits.
