Posted on 07/01/2008 9:09:33 AM PDT by rawhide
I know that saving accounts are federally protected if there is a bank failure, but what about my money in a 401K account? Is it also protected? If so, is there a limit?
If you invest your 401K in T-bills, yes.
I don’t think so... but good question.
Typically, the FI is just the trustee of your account, and you own the stock or fund within it.
Permutations vary. Sometimes you own stock in the fund that owns stock in the company.
very plan specific.
Look at the web page for your account.
Mine is not covered by FDIC. Our funds are in Fidelity.
Can’t roll it out without a major penalty. I would think that all 401k’s are not covered by FDIC. But check with your fund. That is the best way to find out for sure.
No. It’s not a bank account. Your money is invested depending on how you select - in stocks, in bonds, in mutual funds - so there is no single institution to insure. And the government may regulate the financial markets but they don’t insure against loss. There would be a lot of happier former Enron and Worldcom people around if they did.
Company-sponsored 401(k) accounts are a whole different matter. If you have a 401(k) account with a company you no longer work for, open a proper rollover IRA and move the funds.
I think I see what you are saying. My 401K may be invested in stocks, bonds, maybe mutual funds, so that is where my money is really residing? The FI is the trustee as you say, just earning a small fee to manage my account. So if they go under, what happens next?
My 401K is also managed by Fidelity.
From yahoo answers...
Is a 401k account insured?
I’m afraid not.
A 401k, like an IRA, is only a framework that allows you to put money aside tax-deferred (you pay taxes when you take it out).
You can think of a 401k a holding tank for your money. Once the money is in your 401k, you can buy stocks and bonds. If you change you mind and decide to buy different stocks and bonds, you sell some of the old ones and buy new and don’t have to pay taxes on any money you made - provided it stays in your 401k.
Because you are investing in the stock (or bond) market with the money in your 401k, it might lose value - just like a regular brokerage account.
FDIC insurance is only for checking accounts, savings accounts and certificates of deposit (CDs)
Hmm.
When BearSterns went under, I went though all the options that we have available at Fidelity and most of the funds were heavy in financials. I found a few funds that weren’t. We don’t have the better select funds to choose from either. Oh well. I and hubby decided to put our funds into the Canadian, Latin American and an Independence fund. They have been performing well up until this last month. Not have lost serious ground, but not going the way they were from March until May. These funds have materials and energy stocks as their biggest percentages. If inflation gets really serious, treasuries could be an option.
Your mileage may vary.
401k assets are yours, regardless of what happens to the financial institution. As a previous poster noted, the financial institution is a trustee of the plan in which you participate.
From the Yahoo! definition above, it is true that they are not insured, but that’s a different question than you seem to be asking. When you deposit money in a bank account, the bank then takes those deposits (plus those of other depositors), and makes them available to fund car loans, mortgages, small-biz loans, etc. Banks fail for a variety of reasons, including withdrawal demands exceeding their ability to pay (because the money’s out in the form of loans). FDIC insurance on bank deposits is there to protect your principal (the amount you’ve deposited) should the bank fail.
In a 401k, should your money be invested in assets that lose value (mutual funds, for example), then you will suffer the loss in value directly.
So, if you’re worried that a failing bank will somehow affect your 401k account, rest easy. You should be more concerned about how your investments are allocated in your account, and ensuring the risk you’re taking on is consistent with your tolerance for risk, and your time-horizon (when you’ll need the money).
Thanks everyone for all the good answers. I was just reading about a bank that might be going under and it got me to thinking.
These are unrelated issues. When you put money in a bank, the bank doesn’t have to keep the money — they can lend it out. The need for insurance arises when too many of the banks borrowers don’t repay the loans. When you have a 401k account, it contains securities, and the account custodian has to keep them there. The value of the securities may go down drastically, but they’ll still be there.
No.
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