Is Money Safe in a Roth IRA?
How safe your money is in a Roth IRA depends on how you invest it. A Roth is not an investment itself. Instead, it is a tax-advantaged retirement account that lets you invest in certificates of deposit, securities like stocks and mutual funds, real estate and other investment vehicles. In contrast to a Traditional IRA, contributions to a Roth IRA are not tax-deferrable while withdrawals are generally tax-free, but this has no bearing on the safety of your investments.
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Investment Types
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The Internal Revenue Service prohibits only two types of investments for Roth IRAs: those that benefit yourself and investments in collectibles. For example, you cannot invest your IRA money in a house you are going to live in, even though real estate is an allowed investment. (The IRS does allow limited withdrawals from IRAs for first-home purchases, but that's another matter.) Common investments for Roth IRAs include mutual funds, stocks and bonds, all of which are subject to the usual market risks and can drop as well as increase in value.
FDIC Insurance
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For a very safe investment in your Roth IRA, consider those protected by the Federal Deposit Insurance Corp. The FDIC insures certain bank accounts up to a limit. These include money market deposit accounts, certificates of deposit and savings accounts.
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FDIC Limits
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As of 2009, FDIC insurance will cover the first $250,000 in your Roth IRA if you put it in an appropriate bank account. Your money will be returned if the bank fails. This limit continues through 2013, at which point it may be increased or decreased.
No FDIC Coverage
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If your Roth IRA money is not in an FDIC-insured account, such as a stock or bond mutual fund, it is subject to more risk. But these investments will usually offer a higher rate of return over the long term than FDIC-insured accounts.
Risk vs. Reward
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When you are considering what to invest your Roth IRA money in, decide how long you have to invest until you need the money for retirement. If you have a decade or more, consider more risky investments like stocks and mutual funds, which can give you the best return over time.
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