Dear Liz: I’m setting up accounts post-divorce, while learning personal finance on the fly. Is it “safe” or advisable to have all of my larger accounts — IRAs, 401(k), cash management — with the same institution, or should I spread them around? I have smaller checking and savings accounts with a good credit union.
Answer: Using a single investment firm is certainly convenient, and most people will be just fine having all their accounts in one place.
The Securities Investor Protection Corp. covers accounts up to $500,000, including up to $250,000 in cash. This insurance protects you if the brokerage fails and your cash or securities go missing.
Customers with multiple accounts often get more coverage. For example, IRAs and Roth IRAs would each get up to $500,000 in coverage, as do individual and joint brokerage accounts. A person with all four types of accounts would have $2 million in coverage. Accounts for corporations, trusts, estate executors and guardians of minors also get separate coverage. For more details, see SIPC’s brochure, “How SIPC Protects You.”
Your 401(k) has its own protections. Assets in 401(k)s are placed into trust accounts, separate from the investment firms that administer the plans and the employers that sponsor them. The money can’t be touched by creditors of either one.