Wednesday, October 28, 2015

Has Your Bank Lost Your IRA?

A growing trend has been taking place, which hasn't seemed to hit the major media yet. I have been hearing from stockbrokers and financial planners recently about clients who have put their money in Individual Retirement Accounts with the funds invested in bank savings accounts and Certificates of Deposit. And the money has disappeared.

I heard about one recently retired person who invested in over a dozen bank IRAs over many years at a major bank, went to consolidate them, and discovered that the bank has no record of the IRA accounts.

What has been going on? First, I heard that at this particular bank, the branches/managers/employees get bonuses or bonus points for every new account opened. So ever year when this person went to invest $2,000 in an IRA, the bank would open up a brand new IRA account and put the funds in a new savings account or CD. This is how this investor ended up with so many IRAs.

Then if there is no activity in the account (in other words, no contributions, since earning interest is not considered activity), it is deemed to be dormant, and after a certain number of years, the funds are supposed to be turned over to the state. In this case, the state has no record of this person's funds.

Because these contributions had been going on for many years, this person never saved old paperwork going back that far, not even cancelled checks (although in some cases, the funds could have been transferred directly from the checking account to the IRA).

What's an investor to do? In this particular case, let's hope the bank has records going back that far and can find them. But this is one of many cases I have been hearing about, with various banks involved.

The takeaway from this is keep records that may affect something in the future. Any paper records showing retirement contributions should be saved, no matter how many years into the future your retirement is. It doesn't matter whether you are investing with a bank, a brokerage firm, a mutual fund, or an insurance company, keep the records. Any online IRA contribution transactions should be printed out and saved (don't just save a copy on your computer).

The same rules apply to other long term investments, especially real estate, such as documents related to your home and rental property. Hopefully, you won't have to rent a storage unit to save all this paper, but a file box should be more than adequate. Being a micro-packrat can save you a lot of grief.

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