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The Honolulu Advertiser
Posted on: Thursday, March 23, 2006

Many retirement savings will get more protection

By Michelle Singletary

Money you've socked away in certain retirement accounts will have more federal insurance protection at your bank and savings institution beginning April 1. Credit union depositors will also see an increase in the insurance limit for their retirement accounts.

Both the Federal Deposit Insurance Corp. and the National Credit Union Administration recently approved final rules to implement a raise in the amount of deposit insurance coverage to $250,000 from the current $100,000 on self-directed retirement accounts primarily traditional and Roth IRAs (individual retirement accounts).

The increase in insurance coverage also covers self-directed Keogh accounts, 457 plan accounts for state government employees, and employer-sponsored accounts that are self-directed, primarily 401(k) accounts, according to a release by the FDIC. Self-directed means you control how and where the money is deposited.

The FDIC insures deposits up to a certain limit at the nation's 8,833 banks and savings associations. The NCUA operates the National Credit Union Share Insurance Fund, which insures the accounts of nearly 85 million account holders in all federal credit unions and the majority of state-chartered credit unions.

This is the first time in more than 25 years that federal deposit insurance coverage has been increased.

Fortunately, the public hasn't seen a massive number of bank and thrift failures in recent years. But from 1980 to 1994, more than 1,600 FDIC-insured banks were closed or received FDIC financial assistance far more than in any other period since the advent of federal deposit insurance. The last bank failure was June 25, 2004, in Utah, according to the FDIC. This is the longest period without a failure since the FDIC began insuring deposits in 1934.

The higher insurance rates are such a good move because workers increasingly are being asked to save for their own retirements, and many of them will want their savings protected by the government.

Now, under the new law, all deposits at the same credit union, insured bank or savings institution that are in the broad category of self-directed retirement accounts will be added together and insured up to $250,000.

The increase does not cover other deposit accounts that an individual or a family may have in non-retirement accounts. That basic limit will remain at $100,000 per depositor, although much more coverage is possible if you open accounts in different ownership categories, such as single, joint and trust accounts.

The good news is that IRAs and other retirement deposit accounts are insured separately. So you get coverage of up to $250,000 for your retirement accounts and you continue to be insured up to $100,000 for other nonretirement deposit accounts you may have at the same institution.