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SIPC Limits
Old 08-15-2022, 05:05 PM   #1
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SIPC Limits

Does anyone worry about the SIPC limit of $500K per account ("separate capacities" as described by the SIPC folks)? I don't recall hearing this discussed but it seems like something to consider.

I am retired and have a tax deferred account with Fidelity that exceeds this limit by a fair amount. Somehow I cannot envision a situationm where SIPC coverage would kick in for the case of Fidelity. But history is full of stuff that is not envisioned.

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Old 08-15-2022, 05:09 PM   #2
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If you have a taxable, an IRA and a ROTH, is that 3 accounts or just 1?
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Old 08-15-2022, 05:13 PM   #3
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Originally Posted by joesxm3 View Post
If you have a taxable, an IRA and a ROTH, is that 3 accounts or just 1?
My reading is that those would each have separate $500K limits (less for cash but I am not sure how that works). dave
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Old 08-15-2022, 06:28 PM   #4
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Fidelity, like many of the major brokerages, carries insurance coverage in excess of SIPC limits.

Understand, that it would be highly unlikely that you'd even need to tap into SIPC coverage if your cash is mostly invested in securities (stocks, bonds, mutual funds, ETFs) as you are the owner of record. Where SIPC and other insurance would come into play is if the brokerage were stealing from your account. Additionally, if you have lots of cash sitting in your account well above the $500k SIPC limit and the brokerage goes under, then it might be an issue to think about.
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Old 08-15-2022, 06:48 PM   #5
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How did SIPC coverage work out in the Bernie Madoff case?
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Old 08-15-2022, 07:50 PM   #6
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How did SIPC coverage work out in the Bernie Madoff case?
From what I have read, the SIPC did pay some of the clients for some of their losses. But it is complicated. First there is the $500K limit. Second the coverage did not cover supposed gains that never existed. So if you invested $1M, were told after a few years that your balance was $10M, you withdrew $1M as part of your retirement income plan, you had no SIPC coverage as you had withdrawn all the money that really existed (over-simplified, but I think that is how it worked).

But the SIPC did make payouts.

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Old 08-15-2022, 07:51 PM   #7
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Fidelity, like many of the major brokerages, carries insurance coverage in excess of SIPC limits.

Understand, that it would be highly unlikely that you'd even need to tap into SIPC coverage if your cash is mostly invested in securities (stocks, bonds, mutual funds, ETFs) as you are the owner of record. Where SIPC and other insurance would come into play is if the brokerage were stealing from your account. Additionally, if you have lots of cash sitting in your account well above the $500k SIPC limit and the brokerage goes under, then it might be an issue to think about.
Re: The bold part - that is very interesting. I will have to investigate that. Thanks.

On the cash comment, cash is covered to only $250K from what I have read.

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Old 08-15-2022, 08:41 PM   #8
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From what I have read, the SIPC did pay some of the clients for some of their losses. But it is complicated. First there is the $500K limit. Second the coverage did not cover supposed gains that never existed. So if you invested $1M, were told after a few years that your balance was $10M, you withdrew $1M as part of your retirement income plan, you had no SIPC coverage as you had withdrawn all the money that really existed (over-simplified, but I think that is how it worked).

But the SIPC did make payouts.

dave
I think there were some really big clawbacks going on for people who had withdrawn money early in the scheme.
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Old 08-16-2022, 06:29 AM   #9
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I agree with what others wrote here. Fido has insurance coverage in excess of the $500k limit. The $500k limit applies to separate accounts one may have, such as IRA, Roth IRA, taxable, etc.

As for Madoff, I heard about clawbacks, too, from those who profited off others based on the time of entry into the scheme.
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Old 08-16-2022, 07:03 AM   #10
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I found this at mrmarvinallen.com . I don't know anything about this site other than it 'felt like it was legit'. The context here is before/after the account transition that Vanguard is requesting that all customers make. I don't know what to think about the Red Arrow line other than it certainly is not what I would have expected (and might be related to the fact that Vanguard's corporate structure is pretty unique being kind of like a mutual company).

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