IRAs, Other Accounts Have Separate Insurance

QUESTION: In a recent column you addressed the issue of insurance coverage for bank and savings and loan deposits. I’m wondering about insurance coverage for individual retirement accounts and, specifically, my situation. At one thrift, I have a $75,000 IRA, a $15,000 checking account and a $25,000 certificate of deposit. The three accounts, which total $115,000, are all listed in my name only. Am I completely covered, or do my accounts exceed the $100,000 limit?--J.J.S.

ANSWER: As we explained earlier, deposit insurance is an involved issue with complexities beyond the basic $100,000 insurance coverage commonly advertised. As we also said earlier, one of the biggest misunderstandings about the deposit insurance offered by both banks and savings and loans is that the $100,000 limit is applied solely on a per-account basis. Actually, the insurance coverage is based on a complicated set of categories of savings accounts, and savers are limited to $100,000 worth of insurance per category of savings per institution.

IRAs are a category unto themselves and, as such, are entitled to a total of $100,000 worth of insurance at any one institution. In your case, your IRA is under the limit, so it is entirely insured. Your personal accounts--savings and checking--total just $40,000 and are separately insured up to a total of $100,000. If you had joint accounts with your wife, child or other individual, those would be insured as a group up to a total of $100,000 per individual, provided that no single individual has more than $100,000 in accounts held jointly with others at a particular savings institutions.

Again, to reiterate our earlier advice: If you are blessed with a portfolio of significant size, your best bet is to spread it around among several savings institutions to make sure you are completely covered by federal deposit insurance.

For more information, ask your bank or savings and loan manager for a copy of the FDIC’s pamphlet titled “Your Insured Deposit.” If you have difficulty obtaining it locally, write to the FDIC at 550 17th St. N.W., Washington 20429. Mark the envelope “Attention: Corporate Communications.”

There Are Limits on Giving Savings Bonds

Q: Is it possible to donate Series E or EE savings bonds to a charitable institution while one is still alive? What are the tax consequences of such a gift?--T.M.

A: Yes, you may give savings bonds to your favorite charity. However, you may not give away any untaxed interest these bonds may have accumulated for you. For example, say you bought a bond for $50, and it is now worth $100. If you did not pay income tax on the interest as it accumulated each year--as is the practice for most bond holders--you must report the $50 gain and pay taxes on it before you can qualify for the charitable donation deduction of $100. The rule is simply that you cannot give away any income that is not reported and taxed.

However, in case you care, donating appreciated stocks is a different matter because the IRS draws a distinction between interest income generated by investments and any appreciation in their market value. In the latter case, you are allowed to donate asset appreciation--untaxed--and declare the entire gift as a deductible item. So if you bought a share of XYZ Corp. for $50 and it was worth $100 when you gave it away, you would not have to pay taxes on the appreciation and would be allowed to deduct the entire $100 gift.

Marriage Could Alter Some of Your Benefits

Q: I am a disabled woman receiving both Social Security and Supplemental Security Income (SSI). The man I plan to marry is also receiving Social Security as well as a pension from his previous employer. If we marry, would our Social Security payments be affected?--M.G.W.

A: Neither Social Security benefit would be affected. However, your SSI benefits would be reduced, dollar for dollar, for any additional income, including Social Security benefits of your husband, coming into the household. This means, for example, that if you are receiving $250 a month in SSI payments and your husband’s monthly pension and Social Security benefits exceed that amount, your SSI payments would be discontinued. If his total monthly income were $200, your SSI payment would be reduced by that amount.

If finances are a major concern, this information may affect how you want to proceed. In some cases--and this certainly appears to be one--marriage can bring more hardship than bliss.

You Can’t Act as Own IRA Account Trustee

Q: I have just received a 401(k) lump sum distribution that I plan to roll over within the 60-day limit to three separate investments: mutual funds, a self-directed stock account and discounted trust deeds. What steps do I have to take in order to be the “custodian” of these self-directed investments? I can’t seem to find any guidelines for individuals acting as custodians of their individual retirement accounts.--H.B.R.

A: The reason you can’t find these guidelines is that they do not exist. And the reason they do not exist is that individuals are not allowed to act as custodians of their IRAs. The IRS allows only certain types of financial institutions--notably banks and thrifts-- to act as custodians.

However, many--but not all--banks and thrifts allow their customers a great deal of latitude in directing their IRA investments.

Start by asking your own savings institution whether it allows “self-directed” IRAs. Keep asking until you find an institution that will give you the latitude you want. When you do, chances are you will be charged a fee to sign up. Your institution will still act as trustee of your account, but the trustee will follow your directions and invest your money as you want.