Q: If one is rolling over a 401(k) into an IRA and the amount of money is over $500,000, should the money be divided up between institutions to be sure it's covered by insurance, should the institution go under? Fidelity says that anything over that amount is covered by an insurance policy from Lloyds of London. Is that sufficient or should the money be rolled into two or three IRAs at different companies?
A: If you are housing your investments with Fidelity, I would follow their guidelines. If Fidelity states that all amounts over $500,000 are covered by an insurance policy, then your IRA should be safe with the company.
Typically, like FDIC insurance, investors' assets are covered by Securities Investor Protection Corporation (SIPC). Currently, SIPC coverage is available up to $500,000 per customer including $100,000 in cash. If your accounts exceed those limits, most brokerage houses carry supplemental private insurance as well (in your case, that is Lloyds of London).
SIPC is not a federal government agency and is funded by the member brokerage firms. It is important to remember that SIPC does not provide protection against market declines.
SIPC replaces missing stocks and other securities and helps those who have had money, stocks or securities stolen by a broker or whose brokerage firm went out of business. Some assets are not covered by SIPC, so be sure to inquire with Fidelity about exactly which assets are covered.
You can also check in with your financial advisor and have him/her look over your account and Fidelity's guidelines to ensure that your money is safe.
This response is for information purposes only. Kimberly Foss, CFP, CPWA, and Empyrion Wealth Management do not endorse any of the above products, companies or strategies. Before acting on any issue covered in this response, it is important to speak with your financial planner, CPA, insurance agent or attorney since they are most familiar with your situation.