Facts About Roth IRA Bank Accounts
Roth IRAs are investment structures regulated by the Internal Revenue Service. The Roth IRA grows tax free; this includes principal and earnings since the money placed into the Roth IRA is after-tax dollars. While there are many ways to invest a Roth IRA, conservative investors may choose to keep assets with a bank as the custodian for the IRA.
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IRS Allowed Investments
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The IRS allows a variety of investment options to be held in an IRA, whether it is a traditional IRA or Roth. Investors can choose to own stocks, bonds, mutual funds, annuities, real estate or precious metals. Some investors choose more conservative investments and want the protection offered by banks. Holding your Roth IRA in bank savings and time certificates is a suitable, IRS-approved investment.
Bank Investment Options
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The bank has three primary investment options for Roth IRAs. You can choose from a savings account, money market account or time certificate. Discuss with bank representatives what options are providing the highest returns. Historically, time certificates outperform savings and money markets, but this isn't always the case. Savings and money markets are liquid and can be withdrawn without fees anytime, though money markets have a limit of six transactions per month based on FDIC regulations. Time certificates must be held for the term agreed to avoid paying a fee for withdrawal.
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Protections
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Bank accounts are protected and insured by the federal government through the Federal Deposit Insurance Corporation (FDIC). Be sure you fall within the guidelines of insurability. You are insured an aggregate value of $250,000 in IRA funds. This is separate from your personal savings and checking balances.
Misconceptions
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Many banks have brokerage firm subsidiaries selling annuities, stocks, bonds and mutual funds. Not every product sold in a bank is a bank product and insured by the FDIC. Make sure you are aware of the products you are buying. Banks representatives and brokers are required by federal regulations to disclose any non-FDIC insured product and review the risks associated with them.
Considerations
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Each person must review his investment objectives and retirement income needs regularly. Those who want to preserve capital and place retirement assets at little to no risk should explore having bank Roth IRA investments for at least a portion of their portfolio. A financial advisor such as an estate planner or tax advisor may offer you the most neutral advice regarding portfolio selections and balancing your risk and return ratios. When in doubt, seek professional advice.
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