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Is my IRA protected by SIPC?

November 8, 2012: 6:30 AM ET

I have an IRA worth $225,000, which is mostly in cash at a well-known brokerage firm. I know SIPC covers up to $500,000 for brokerage firms with SIPC insurance, but I think it only covers $250,000 for cash values. Can I split my IRA to another firm? — Richard P.

Your total is currently below the $250,000 coverage limit on cash, so Securities Investor Protection Corporation insurance -- which protects assets held at a brokerage if the firm fails or if a broker steals from a customer account -- will automatically cover your entire balance in your existing IRA, even though it's mostly cash and so would likely qualify for the lower coverage limit.

But should your IRA grow beyond the $500,000 overall limit, or the cash portion of your IRA exceeds the $250,000 limit, you can maintain coverage in one of two ways, according to SIPC president Stephen Harbeck.

First, consider rolling over some of your IRA assets into another account such as a Roth IRA. According to the SIPC Series 100 rules, accounts held in different capacities by one customer are considered to be accounts held by "separate" customers. That means you could have a traditional IRA and a Roth IRA at the same firm, and each would be covered separately up to the $250,000 cash limit and $500,000 total limit, says Harbeck.

Your second option involves opening an account with a second firm. You could have two traditional IRAs at two separate brokerage firms and they both would be subject to separate SIPC coverage limits. (Having multiple IRAs, you should know, doesn't mean you can contribute more. You'll still only be able to contribute the annual maximum, which this year is $5,000 or $6,000 if you're 50 or older.)

— Austin Kilham

Got a question for the Help Desk? Send it to helpdesk@cnnmoney.com.

Posted in: Investing, Retirement
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