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Are Roth IRA Accounts FDIC Insured?

Are you thinking about opening a Roth IRA and wondering if your money is FDIC insured?

Great question!

There are two main types of protection for your assets: FDIC insurance or SIPC coverage.

FDIC insurance protects bank customers in case a financial institution fails and SIPC protects brokerage firm customers in case of bankruptcy or failure. Check with your brokerage account to see if your assets are covered under SIPC or FDIC.

How FDIC Insurance Works

FDIC insurance covers up to $250,000 per depositor for all types of deposits received at an FDIC insured bank, including deposits in the following accounts:  

  • Checking account
  • Negotiable order of withdrawal (NOW) account, 
  • Savings account
  • Money market deposit account (MMDA),
  • Certificate of deposit (CD)
  • Cashier’s Check or Money Order issued by a bank

If you have a core position (cash inside your account) within your Roth IRA account, it may be FDIC insured. Contact your brokerage firm for more information.

Here’s How the Core Position Works in your Fidelity Account

Let’s say you contribute $4,000 to your Roth IRA account. You use $3,000 to invest in stocks. That means you have $1,000 uninvested cash.

This uninvested cash will remain in a core position that is automatically established when you sign up for a Fidelity account. The core position will be used for processing cash transactions, buying securities in your portfolio, and holding uninvested cash.

Let’s say you sell $2,000 worth of stock in your portfolio. The $2,000 will be deposited in your core position.

Roth IRAs at Fidelity have three core positions.

  • FDIC – FDIC-Insured Deposit Sweep Program
  • FDRXX – Fidelity® Government Cash ReservesYour cash is invested in a mutual fund and earns

The only core position that is covered under FDIC Insurance is the FDIC-Insured Deposit Sweep Program. This is an interest-bearing position that is eligible for FDIC insurance. You can change your core position choice in your fidelity account.

What Happens to the Money in your Account that is Not Eligible for FDIC Insurance?

That’s where SIPC (Securities Investor Protection Corporation) coverage saves the day.

SIPC covers up to $500,000 in securities which includes a $250,000 limit for cash held in a brokerage account.

All Fidelity Roth IRA accounts are covered by SIPC. Talk to your brokerage firm to find out about specific coverage.

Remember, SIPC does not protect against negative performance in the markets. If you invest $2,000 in securities and the value of your investments decline to zero, you are not protected.

When you invest in the market, there is no guarantee of profits. You could lose money if a company doesn’t perform well.

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Do you have a Roth IRA account or are you considering opening one? Let us know in the comments below!

About Charlene Rhinehart, CPA

Charlene Rhinehart is a Certified Public Accountant, Founder of Wealthy Women Daily, and Editor-in-Chief of the Dividend InvestHer and The Wealthy Woman Investor. Charlene is currently the Chair of the Illinois CPA Society Taxation Individual Committee. With over a decade of experience in the financial services industry, Charlene is one of the few leaders who design insights specifically for the woman investor. Charlene’s work has been featured in a variety of publications including the Huffington Post, Black Enterprise, and the American Institute of Certified Public Accountants. In 2019, Charlene released her book “Dividends Are a Queen’s Best Friend”, on Amazon.

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