Once upon a time, retirement in America was referred to as “a three-legged stool.” The first leg was your expected Social Security benefits, the second leg was your own personal savings and the third was something old-timers called a pension.
A financial advisor can help you create an income plan for retirement. Find a fiduciary advisor today.
A pension – also called a “defined benefit plan” – is a payment from a former employer that was (and sometimes still is) offered as a benefit with no contribution from you. The payment amount is based on years of service with that company. Once you’ve worked long enough to become “vested,” your benefit is guaranteed at a certain age and doesn’t end until you die. In many cases, a surviving spouse can receive a reduced benefit.
In 1975, there were 103,346 pension plans in the United States, a number that started to decline in the early 1990s and dwindled to just 46,577 plans by 2020. In many cases, the companies that promised those pensions have been sold, merged or gone out of business. However, many workers who are still entitled to receive those benefits lack any details about their pensions, including how to go about collecting them.
Unclaimed pensions are waiting to be claimed by at least 80,000 people, according to the Pension Benefit Guaranty Corp. (PBGC), the federal agency that oversees retirement security for Americans. In some cases, the people entitled to those pensions don’t even know they’re eligible to receive payments.
Resources For Locating an Unclaimed Pension
If you’re looking for a missing pension – or want to find out if you qualify to receive one, try these resources:
Previous employers. Keep your contact information updated with the benefits administrator at the companies where you worked or their successors.
Legal assistance. The Pension Rights Center is an information resource that also runs Pension Counseling and Information Programs in 31 states. These programs provide free legal assistance for help with pensions, profit-sharing and retirement savings plans.
In states without counseling and information programs, the Pension Rights Center’s Pension Help America offers assistance in finding counseling projects, government agencies and legal service providers.
Meanwhile, the National Pension Lawyer’s Network, an affiliate of the Pension Rights Center, is a free service that can refer you to lawyers who take pension cases, sometimes pro bono.
Employee Benefits Security Administration. The EBSA is part of the U.S. Department of Labor and has free counselors who can answer pension questions. The E-Fast feature on the agency’s website can find pension plan annual reports going back to 2010, which explain how to file a pension claim. The Abandoned Plan Search Tool is also on the agency’s website.
Other resources. Pension Benefit Guaranty Corp. (PBGC) can help with claiming a pension. You can call for assistance toll-free at 800-400-7242.
Meanwhile, the National Association of State Treasurers runs the National Association of Unclaimed Property Administrators, a network of to help locate unclaimed assets. Additionally, the National Registry of Unclaimed Retirement Benefits is run by PenChecks, the largest independent processor of retirement benefit distributions in the U.S.
Bottom Line
As defined-benefit pension plans have been phased out in favor of 401(k) and similar accounts, workers may not know that they qualified for a pension many years ago. In addition, as older companies have been sold, merged or closed pension plans can lose track of vested employees. Even when a company has declared bankruptcy, pension benefits may be protected by the federal Pension Benefit Guarantee Corp. (PBGC)
Tips for Claiming Your Pension
There are a number of resources, as listed above, for locating a missing or unclaimed pension. If you think you once qualified for a pension, don’t assume that you’ll be contacted to claim it. Remember, just because you once worked at a company that offered a pension plan you may not have worked there long enough to become vested. In that case, your pension benefits would have been forfeited when you left the company. To see how any pension income might figure in your retirement plans, try SmartAsset’s retirement calculator. This free tool will estimate how much you’ll have when the time comes to retire.
In most cases, an old pension likely won’t pay enough benefits to live on. You’ll still need to figure out when and how to claim your Social Security benefits and maintain your own savings to support yourself in retirement. A financial advisor can help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you.
By Peter Anderson3 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited March 11, 2010.
If you’re a self employed person or are looking at taking the plunge and becoming an entrepreneur, one thing you have to consider is how you will save for retirement. Since you won’t have the option of a 401k, there are several other retirement account type options that you will want to think about using. Among them are:
SEP IRA
SIMPLE Plan
Solo 401(k)
Keogh Plan
Today I want to look at what many consider one of the better options for tax deferred investing for self employed individuals, the SEP IRA
What Is A SEP IRA?
First of all, let’s get the definitions out the the way. What does SEP IRA stand for? When I first started researching the topic I was reading lots of articles talking about how self employed individuals were taking advantage of the accounts, so I assumed it meant “Self Employed IRA”. After reading up on it a bit more I realized that my assumption was wrong. SEP IRA actually stands for Simplified Employee Pension Individual Retirement Arrangement. It is basically an easy way for small businesses to set up a retirement account option for their employees with minimal administrative costs or paperwork.
The SEP IRA is pretty much like a traditional IRA account, although it does have some differences, especially as it relates to the contribution limits. The contribution limits for a SEP IRA are higher.
SEP IRA Rules
As an employer there are rules and regulations you need to follow when you open a SEP IRA. Most of the rules that apply to Traditional IRAs also apply to SEP IRAs. Among the SEP provisions:
All eligible employees must be provided with plan benefits, and a separate IRA account. If you are self employed with no employees besides yourself, it isn’t an issue. If you have employees, it is something to consider.
Part time employees who are 21 years of age who have worked 3 out of the preceding 5 years, earning $500 or more annually will be eligible.
Only the employer can contribute to the SEP IRA. If you work for a company that provides one, only your employer can contribute to the account.
You have until the tax filing deadline of April 15th to establish and fund your SEP IRA.
Withdrawals from a SEP IRA are treated the same as withdrawals from an IRA account – with a 10% early withdrawal penalty, and taxes charged at your current rate.
Only income from the business can be contributed – you can’t contribute money from your day job if you have one.
SEP IRA Contribution Limits
Contributions to the SEP IRA are subject to yearly limits, however, they are higher than many other similar account types. For example, for tax years 2009 and 2010 you can contribute up to 25% of an eligible employee’s compensation, up to a limit of $49,000. Extrapolated from the 25% rule the income threshold for a SEP IRA is then $196,000.
Example: Let’s say you make $100,000 a year and you’re self employed. Under a SEP IRA you would be able to contribute 25%, or $25,000 to your plan.
No catch-up contributions are permitted for older employees.
Benefits Of The SEP IRA
There are several benefits to having a SEP IRA account. Among them:
If you are an employee at a small business that has a SEP IRA plan, you are 100% vested in the contributions your employer makes, right away. The money is yours!
Tax deferred investing!
High contribution limits for self employed individuals.
Easy to setup. Usually can be done simply by filling out IRS Model Form 5305-SEP
Less paperwork and administrative costs after the plan is setup.
Flexible annual contribution obligations – a good plan if cash flow is an issue. You can contribute 10% one year, and then 5% the next if you want.
Do you contribute to a SEP IRA as a self employed individual, or do you have one through an employer? How has it worked out for you? Have we missed any important details about the SEP IRA? Tell us about it in the comments.
Life insurance is an important component of most all financial plans. That’s because when you have life insurance, you can be much better assured that your loved ones and survivors will be able to go financially in case of the unexpected.
The proceeds from a life insurance policy can be used for many different things, including the payoff of final expenses or other large debts, as well as ongoing living expenses so that loved ones won’t have to drastically change their lives.
When purchasing a life insurance policy, it is important to review several factors before moving forward. Certainly, narrowing down the right type and the amount of life insurance that you are applying for is essential. This is because you don’t want loved ones to be underinsured.
However, it is also essential to review the insurance company through which you are purchasing the coverage. That is because the insurance carrier should ideally be strong and stable financially, and it should also have a good reputation for paying out its policyholder claims. One insurance carrier that has an excellent track record in the industry is AAA.
Table of Contents
The History of AAA Life Insurance Company
AAA Insurance Company has been in the business of helping its customers since 1902. The company began as The Automobile Club of St. Louis. The company grew very quickly over the next several years. And, after opening regional offices throughout the state of Missouri, the firm changed its name to the Automobile Club of Missouri (ACMO).
Still, in its early stage, the company hired a young Harry S. Truman, who sold many memberships prior to setting out to pursue his military and political career. AAA introduced many new ideas into the auto insurance world, including roadside service.
Over the next several decades, the company continued to grow and expand, absorbing many smaller auto clubs throughout the state and throughout the country. In 1969, AAA Life Insurance Company became a part of AAA. This company offers both life and annuity products. Today, AAA Insurance is a large and thriving insurer that offers a wide variety of both insurance coverage and other financial products to its customers.
AAA Life Insurance Company Review
AAA Life Insurance Company is headquartered in Livonia, Michigan. Currently, the company has approximately 1.2 million policies in force. Not only does AAA Life Insurance Company help its customers to save and protect their financial assets, but the company is also very involved in community efforts. For example, over the past decade, AAA has supported various entities by raising money and / or serving in other manners. Just some of these organizations include:
American Heart Association
Alzheimer’s Association
American Red Cross
American Diabetes Association
American Cancer Society
The company also has an excellent reputation for providing outstanding customer service to its policyholders. The company provides information, including life insurance quotes, via the Internet, telephone, and / or through in-person visits with an agent.
Company Ratings and BBB Grade
AAA Life Insurance is considered to be financially strong and stable, and because of that, it is highly rated in the industry. The company has a rating of A- (Excellent) by A.M. Best, which is the fourth highest rating out of a possible 16.
The company is not an accredited member of the Better Business Bureau (BBB), nor has it been provided with a letter grade between A+ and F. However, over the past three years, AAA Life Insurance Company has closed a total of 18 complaints through the BBB.
Of these 18 total complaints, eight had to do with problems with the company’s product and / or service, another five were regarding advertising / sales issues, and yet another five were in regard to billing and / or collection issues.
Life Insurance Products Offered By AAA
AAA Life Insurance Company offers several options for life insurance coverage. These include both term and permanent policies. The proceeds from these policies can be used by loved ones and survivors for any need that they see fit.
Term Life Insurance Coverage
With term life insurance coverage, the policy offers pure death benefit protection only, with no cash value or savings build-up in the policy. These policies are purchased for a set period, or “term.” There are several term life insurance options that are offered via AAA. These include:
Term with Return of Premium
The term with return of premium policy is offered for periods of 15, 20, 25, or 30 years. Insured individuals can be covered for between $100,000 and over $1 million. With these plans, the insured is covered throughout the life of the policy. And, if he or she survives that time period, then the premiums paid into the policy will be returned. (There is an additional amount of premium that is charged for the return of premium option).
Traditional Term Life Insurance
With the traditional term life insurance product, coverage of up to $5 million (or more) is available, with a minimum death benefit of $100,000. Coverage terms can be chosen from 10 years, 15 years, 20 years, 25 years, or 30 years. The premium payments are guaranteed to remain level throughout the life of the policy. Also, an insured may have the option to convert this term insurance over into a permanent form of life insurance coverage.
Express Term Life Insurance
Express term life insurance from AAA Life Insurance Company may be purchased via the Internet. These policies offer coverage of between $25,000 and $250,000 and the term lengths that can be chosen from are 10, 15, 20, 25, or 30 years. Those who are between the ages of 18 and 75 are eligible to apply.
Permanent Life Insurance Coverage
AAA Life Insurance Company also offers permanent life insurance coverage. With permanent insurance, the insured has both death benefit protection as well as a cash value component within the policy that can allow savings to build up. These savings can grow tax-deferred.
There are both whole life and universal life insurance policy options that are available through AAA. Whole life insurance offers long-term insurance coverage with fixed premiums for life. The whole life insurance plans that are offered via AAA include:
Simple Whole Life Insurance
The simple whole life insurance policy is easy to obtain. Coverage may be purchased between $5,000 and $25,000. There is no medical exam required to qualify for this plan. Rather, there are only just a few health questions to answer. An insured may also be able to obtain funds early if he or she is diagnosed with a terminal illness.
Guaranteed Issue Graded Benefit Whole Life Insurance
For those who are between age 45 and 85, the guaranteed issue plan may be a good fit. This policy offers coverage without any medical exam or health questions. It also offers guaranteed premiums.
Universal Life Insurance Coverage
Universal life insurance is also a permanent form of coverage, except that it offer more flexibility that whole life concerning premium payment, as well as where the premium dollars go. AAA offers two universal life insurance policies. These include the Accumulator Universal Life and the LifeTime Universal Life policy.
Other Insurance and Financial Products
In addition to life insurance coverage, AAA Life Insurance Company also offers other products as well. These include annuities (both immediate and deferred), and accident insurance coverage.
Annuities can help individuals to both save for retirement in a tax-advantaged way, as well as to provide an income in retirement – and this income can last for the remainder of the annuity holder’s life, regardless of how long that may be.
With an immediate annuity, an individual deposits a lump sum. This can either be cash from a savings or investment account, or it can be through a “rollover” from an IRA account or a retirement plan such as a 401(k) account. The income stream from the immediate annuity will then begin right away, or within a very short time period.
A deferred annuity provides the ability to build up savings over time. Here, the funds that are within the annuity are allowed to grow on a tax-deferred basis – which can allow the money inside of the annuity to grow and compound exponentially over time. Then, at a point in the future, the income stream will begin. In many ways, an annuity is like a personal pension plan.
Accident insurance is also available through AAA Life Insurance Company. Because accidents can – and often do – occur unexpectedly, this coverage can help to provide financial support to an individual who is involved in an accident, or that person’s loved ones.
There are some key benefits that are offered through the AAA Life Insurance Company’s accident insurance coverage. These include the following:
Hospitalization – Accidents can be an expensive situation – and sometimes, the hospitalization that is received may or may not be covered via a regular health insurance policy. With the AAA plan, an insured individual can be covered for up to $375 per day for a covered non-travel related accident, and for up to $1,500 per day on travel-related accidents. These benefits can be paid for up to 365 days per occurrence.
Recuperation – Sometimes, even when a person is released from the hospital, they may or may not be ready to go back to work. The bills, however, for everyday living expenses will continue to come in. The recuperation benefit on the AAA accident plan can offer another $1,500 per day in benefits that will help with recuperating from a travel-related accident, or up to $375 per day on a covered non-travel related accident. These benefits can be paid for up to 365 days.
Emergency Room and Urgent Care – The cost of emergency room care can also be quite high – and there may be some benefits that are not covered via a regular health insurance policy. With the AAA accident policy, an annual benefit of $1,500 can be paid for ER and urgent care that is received for a travel-related accident, and up to $375 per year can be paid for a non-travel related event.
Accidental Loss of Life – Unfortunately, some accidents will result in the loss of life. If this occurs, a benefit of $500,000 can be paid for the loss of an insured’s life when he or she had been traveling on a regularly scheduled airline flight. A benefit of $250,000 can be paid for accidents that result in the loss of life when the insured is either riding in or driving a private car, truck, motorcycle, self-propelled motor home, or bicycle. This benefit can also be paid if the insured had been traveling as a fare-paying customer on public transportation such as a train, bus, airplane, or taxi. In addition, $250,000 can be paid out in benefits if the insured was struck by a motor vehicle as a pedestrian, and a benefit of $62,500 can be paid for death that is due to a non-travel related covered accident.
AAA members who are at least age 18 or older are eligible to apply for the Member Loyalty Accident Insurance plan. There is no medical exam required to qualify for this coverage.
How to Get the Best Life Insurance Premium Quotes
When seeking life insurance quotes, it is best to work with an independent company that has access to multiple insurance carriers. That way, you will be more easily able to compare what is available to you.
If you are ready to move forward with getting life insurance quotes, we can help. We work with many top life insurance carriers, so can assist you with your needs. Term Life Insurance smoker applicants can find help and information here as well. Just simply take a few moments to fill out the form on this page to begin.
Getting divorced can cause both emotional and financial upheaval for everyone involved. One of the most important questions you and your soon-to-be former spouse may have to decide centers on how to divide retirement assets.
Understanding the key issues around divorce and retirement can make it easier to untangle them as you bring your marriage to a close.
Taking Note of Your Retirement Accounts
The average cost of divorce can range from several hundred to several thousand dollars, so it’s important to know what’s at stake financially. Managing retirement accounts in divorce starts with understanding what assets you have.
There are several possibilities for saving money toward retirement, and different rules apply when dividing each. Here’s a look at what types of retirement accounts you may hold and thus will need to consider in your divorce.
401(k)
A 401(k) plan is a defined contribution plan that allows you to save money for retirement on a tax-advantaged basis. Your employer may also make matching contributions to the plan on your behalf. According to the Census Bureau, 34.6% of Americans have a 401(k) or a similar workplace plan, such as a 403(b) or Thrift Savings Plan.
IRA
Individual retirement accounts, or IRAs, also allow you to set aside money for retirement while enjoying some tax benefits. The difference is that these accounts are not offered by employers. There are several IRA options, including:
• Traditional IRAs, which allow for tax-deductible contributions.
• Roth IRAs, which allow for tax-free withdrawals in retirement.
• SEP IRAs, which follow traditional IRA tax rules and are designed for self-employed individuals.
• SIMPLE IRAs, which also follow traditional IRA tax rules and are designed for small business owners.
Each type of IRA has different rules regarding who can contribute, how much you can contribute annually, and the tax treatment of contributions and withdrawals.
💡 For more info, check out our guide on individual retirement accounts (IRAs).
Pension Plan
A pension plan is a type of defined benefit plan. The amount you can withdraw in retirement is determined largely by the number of years you worked for your employer and your highest earnings. That’s different from a 401(k), since the amount you can withdraw depends on how much you (and your employer) contribute during your working years.
How Are Retirement Accounts Split in a Divorce?
How retirement accounts are split in divorce can depend on several factors, including what type of accounts are up for division, how those assets are classified, and divorce laws regarding property division in your state. There are two key issues that must be determined first:
• Whether the retirement accounts are marital property or separate property
• Whether community property or equitable distribution rules apply
Legal Requirements for Dividing Assets
Marital property is property that’s owned by both spouses. An example of a tangible marital property asset is a home the two of you lived in together. Separate property is property that belongs to just one spouse.
In community property states, spouses have an equal share in assets accrued during the marriage. Equitable distribution states allow for an equitable — though not necessarily equal — split of assets in divorce.
You don’t have to follow state guidelines if you and your spouse can come to an agreement yourselves about how divorce assets should be divided. However, if you can’t agree, then you’ll be subject to the property division laws for your state.
If retirement assets are to be divided in divorce, there are certain steps that have to be taken to ensure the division is legal. With a workplace plan, you’ll need to obtain a Qualified Domestic Relations Order (QDRO). This is a court order that specifies how much each spouse should receive when dividing a 401(k) or similar workplace plan in divorce.
IRAs do not require a QDRO. You would, however, still need to put in writing who gets what when dividing IRAs in divorce. That information is typically included in the final divorce settlement agreement, which a judge must sign off on.
Protecting Your 401(k) in a Divorce
The simplest option for how to protect your 401(k) in a divorce may be to offer your spouse assets of equivalent value. For example, if you’ve saved $500,000 in your 401(k) and you jointly own a home that’s worth $250,000, you might agree to let them keep the home as part of the divorce settlement.
If they’re not open to the idea of a trade-off, you may have to split the assets through a QDRO. That could make a temporary dent in your savings, but you might be able to make it up over time if you continue to make new contributions.
You could skip the QDRO and withdraw money from your 401(k) to fulfill your obligations to your spouse under the terms of the divorce settlement. However, doing so could trigger a 10% early withdrawal penalty if you’re under age 59 ½, along with ordinary income tax on the distribution.
Protecting Your IRA in a Divorce
Traditional and Roth IRAs are subject to property division rules like other retirement accounts in divorce. Depending on where you live and what laws apply, you might have to split your IRA 50/50 with your spouse.
Again, you might be able to protect your IRA by asking them to accept other assets instead. Whether they’re willing to agree to that might depend on the nature of those assets, their value, and their own retirement savings.
If you’re splitting an IRA with a spouse, the good news is that you can avoid tax consequences if the transaction is processed as a transfer incident to divorce. Essentially, that would allow you to transfer money out of the IRA to your spouse, who would then be able to deposit it into their own IRA.
Divorce and Pensions
Pension plans are less common than 401(k) plans, but there are employers that continue to offer them. Generally, pension plan assets are treated as marital property for divorce purposes. That means your spouse would likely be entitled to receive some of your benefits even though the marriage has ended. State laws will determine how much your spouse is eligible to collect from your pension plan.
Protecting Your Pension in a Divorce
The best method for protecting a pension in divorce may be understanding how your pension works. The type of payout option you elect, for instance, can determine what benefits your spouse is eligible to receive from the plan. It’s also important to consider whether it makes sense to choose a lump-sum or annuity payment when withdrawing those assets.
If your spouse is receptive, you might suggest a swap of other assets for your pension benefits. When in doubt about how your pension works or how to protect pensions in a divorce, it may be best to talk to a divorce attorney or financial advisor.
Opening a New Retirement Account
Splitting retirement accounts in a divorce can be stressful. It’s important to know what your rights and obligations are going into the process. If you’re leaving a marriage with less money in retirement, it’s a good idea to know what options you have for getting back on track. That can include opening a new retirement account.
SoFi offers individual retirement accounts for people who want to invest with minimal hassle. You can open a traditional or Roth IRA online and choose between active or automated investing to fit your needs and goals.
Easily manage your retirement savings with a SoFi IRA.
FAQ
How long do you have to be married to get part of your spouse’s retirement?
If you’re interested in getting spousal retirement benefits from Social Security, you have to be married for at least one continuous year prior to applying. The one-year rule does not apply if you are the parent of your spouse’s child. Divorced spouses must have been married at least 10 years to claim spousal benefits.
Is it better to divorce before or after retirement?
Neither situation is ideal, but divorcing before retirement may be easier if there are fewer assets to divide. Getting a divorce after retirement can raise questions over how to divide retirement and non-retirement assets. It may also lead to financial insecurity on the part of one or both spouses if the distribution of assets is unequal.
Who pays taxes on a 401(k) in a divorce?
If you’re dividing up your 401(k) prior to divorcing then you would be responsible for paying any taxes or penalties owed. Waiting until after the divorce is finalized to split your 401(k) with your former spouse could reduce the amount of taxes and penalties you owe.
Photo credit: iStock/FG Trade Latin
This article is not intended to be legal advice. Please consult an attorney for advice. Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice. Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances. SoFi Invest® The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results. Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below. 1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A. SOIN1122015
Dark pools, sometimes referred to as “dark pools of liquidity,” are a type of alternative trading system used by large institutional investors to which the investing public does not have access.
Living up to their “dark” name, these pools have no public transparency by design. Institutional investors, such as mutual fund managers, pension funds, and hedge funds, use dark pool trading to buy and sell large blocks of securities without moving the larger markets until the trade is executed.
Who Runs Dark Pools?
Investment banks typically run dark pools, but some other institutions run them as well, including large broker-dealers, agency brokers, and even some public exchanges. Some trading platforms, where individual investors buy and sell stocks, also use dark pools to execute trades using a payment for order flow.
Recommended: What Is a Market Maker?
The role of dark pools in the market varies over time. Consider this: At the start of 2021, it comprised half of trades in a single day, but a few months later that share had fallen to 12.91% of U.S. equity volume.
Because trades in a dark pool aren’t reflected in the prices on a public exchange, participants in a dark pool trade based on the prices offered on a public exchange, using the midpoint of the National Best Bid and Offer (NBBO) to set prices.
Why Institutions Use Dark Pools
Large, institutional investors such as hedge funds, may turn to dark pools to get a better price when buying or selling large blocks of a single stock. That’s because of the way that large trades impact the public markets.
If a mutual fund manager, for example, wants to sell a million shares of a given stock because it’s underperforming or no longer fits their strategy, they’d need to use a floor trader to unload the position on a public exchange. Selling all those shares could impact the price they get, driving down the VWAP (volume weighted average price) of the total sale.
To avoid driving down the price, the manager might spread out the trade over several days. But if other traders identify the institution or the fund that’s selling they could also sell, potentially driving down the price even further.
The same risk exists when buying large blocks of a given security on a public market, as the purchase itself can attract attention and drive up the price.
Recommended: How to Identify an Underperforming Stock
New Risks
The risks of attracting attention from other traders have intensified with the rise of algorithmic trading and high-frequency trading (HFT). These strategies employ sophisticated computer programs to make big trades just ahead of other investors. HFT programs flood public exchanges with buy or sell orders to front-run giant block trades, and force the fund manager in the above example to get a worse price on their trade.
But with a dark trade, that institutional investor can sell a million shares of a stock without the public finding out because dark pool participants don’t disclose their trades to participants on the exchange. The details of trades within a dark pool only show up after a delay on the consolidated tape – the electronic system that collates price and volume data from major securities exchanges.
There are other advantages for an institutional trader. Because the buyers and sellers in a dark pool are other institutional traders, a fund manager looking to sell a million shares of a given stock is more likely to find buyers who are in the market for a million shares or more. On a public exchange, that million-share sale will likely need to be broken up into dozens, if not hundreds of trades.
Recommended: Institutional Investors vs. Retail Investors
Criticism of Dark Pools
As dark pools have grown in prominence, they’ve attracted criticism from many directions, and scrutiny from regulators. For instance, the lack of transparency in dark pools and the exclusivity of their clientele makes some investors uneasy. Some even believe that the pools give large investors an unfair advantage over smaller investors, who buy and sell almost exclusively on public exchanges.
The Takeaway
As discussed, dark pools are sometimes referred to as “dark pools of liquidity,” and are a type of alternative trading system used by large institutional investors to which the investing public does not have access. They’re typically run and utilized by large investment banks.
Given the nature of dark pools, they attracted criticism from some due to the lack of transparency, and the exclusivity of their clientele. While the typical investor may not interact with a dark pool, knowing the ins and outs may be helpful background knowledge.
Ready to invest in your goals? It’s easy to get started when you open an Active Invest account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
For a limited time, opening and funding an account gives you the opportunity to win up to $1,000 in the stock of your choice.
Photo credit: iStock/DNY59
SoFi Invest® The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results. Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below. 1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A. Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances. Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions. SOIN0623002
If you never watch PBS’ “Frontline,” you’re missing out on some of the best journalism on TV. I don’t agree with every viewpoint they advocate, but each episode is thought-provoking and well done.
Recently, “Frontline” focused on “The Retirement Gamble,” as they titled the piece. It can be summed up by this quote by Zvi Bodie, a professor of management at Boston University: “401(k) plans really place the burden on the individual participant to have an adequate retirement. And the vast majority of ordinary people don’t know how to do that.”
It’s true. As if you don’t have enough going on in your life, you have to become a part-time financial planner and investment manager. You need to figure out how much to save, how to invest your savings, and how to withdraw it in a way that makes it last forever or until you die, whichever comes first.
Of course, you can always get help from the financial-services industry — in particular, the mutual fund providers, since those are the type of investments in most workers’ retirement plans. However, many of these folks are padding their own retirement accounts at the expense of yours. Here’s how economist Teresa Ghilarducci explained it to “Frontline”: “The 401(k) is one of the only products that Americans buy that they don’t know the price of it. It’s also one of the products that Americans buy that they don’t even know its quality. It’s one of the products that Americans buy that they don’t know its danger. And it’s because the industry — the mutual fund industry — has been able to protect themselves against regulation that would expose the danger and price of their products.”
I’ll add another shortfall of the 401(k) industrial complex: You don’t have a choice. The 401(k) is chosen by your employer, who might be keeping costs low by passing the costs along to you. I’m on the 401(k) committee at The Motley Fool, and I can tell you that it does indeed cost an employer money and time to provide a retirement plan; it’s not as easy as opening an IRA with a discount broker. The plan has to meet all kinds of government-mandated tests to make sure that the plan doesn’t disproportionately benefit higher-income employers and owners. So companies that offer a retirement plan deserve some level of gratitude, especially if they match employee contributions. But that doesn’t mean these companies spend the time and money necessary to make it the best plan possible.
Then there are the funds themselves. The “Frontline” episode included an interview with one of my heroes, Vanguard founder John Bogle. His best quote: “Do you really want to invest in a system where you put up 100 percent of the capital … you take 100 percent of the risk, and you get 30 percent of the return?”
Where did the other 70 percent of return go? To the fund companies, due to high fees and low performance — in Bogle’s words, “The magic of compound returns is overwhelmed by the tyranny of compounding costs. It’s a mathematical fact. There’s no getting around it.”
My picking of bones
While I generally agree with “Frontline’s” call to arms regarding the malfeasance of the mutual fund industry, there are a couple of counter-points I would have liked to see them address. First off, the episode recommends index funds over actively managed funds, featuring more footage of John Bogle, one of the main figures in the birth of index funds. However, it would be interesting to ask him why Vanguard itself has had actively managed funds for decades. Perhaps even the most famous advocate for index investing sees some value in paying a fund manager to pick the investments. And, to Vanguard’s credit, the expenses on their actively managed funds are very low. I know because I own a few of them, including a few of their index funds.
The “Frontline” episode also had its nostalgia for the good, old days of defined-benefit pensions, when an employer would reward an employee after decades of service with a monthly check in retirement for life. Like many shows that bemoan the state of retirement in America, they clearly argue that those are better than 401(k)s. However, the truth is that these pensions have their own issues. First off, even at their peak, most Americans didn’t have a pension. At least with a 401(k), workers can save for retirement in a tax-advantaged account, something they didn’t have before these accounts became prevalent in the ’80s. Also, a traditional pension mainly benefited employees who worked for the same company for decades. If you left within, say, five years (as was the case when I was a teacher), you got nothing. The money in a 401(k), however, can be taken with you.
Plus, many pensions don’t have enough money to pay future benefits and are assuming (nay, praying) that unrealistically high investment returns will bail them out. Private pensions are backstopped by the Pension Benefit Guaranty Corporation, but that “safety net” itself is underfunded by more than $20 billion. Government pensions are backed by taxes, and they’re going to hit hard as more and more Boomers retire. So defined-benefit pensions are not the panacea as they’re often portrayed, often using film footage from the ’50s (as “Frontline” did).
Finally, the episode featured interviews with everyday Americans who have little in the way of retirement savings, portraying them as victims of the mutual fund companies. In many ways, they most definitely were. Yet, as these people sit in their kitchens and living rooms, explaining their predicaments to the camera, I can’t help but notice that they have nice furniture, large-screen TVs and cable. I admit that this is a bit callous of me, but I do have a little less sympathy for people with little in savings but plenty of luxuries. (Yes, cable TV is a luxury.)
Carpe 401(k)-em
The good news for you is that you’re taking control; you’re reading this blog and probably other sources of financial education. Hopefully you’re learning how to save for, and spend in, retirement, and how to evaluate mutual funds along the way. Planning your retirement is up to you; no one is doing it for you. Financial advisers have their place, as long as they’re fee-only and fiduciaries (i.e., legally obligated to put your interests first — a standard that doesn’t apply to the large majority of financial advisers). But however you manage your finances, ensure that it’s doing more for your retirement than someone else’s.
Some of the largest banks call America home. These banks are backed by the Federal Deposit Insurance Corporation (FDIC) and offer a variety of products and services. If you prefer a big bank over regional banks or a smaller, community bank, you’ve come to the right place.
Below we’ve compiled a list of the largest banks in the U.S. Once you read through it and perform some of your own research, you should be able to choose a bank or two that meets your needs.
How to Measure Bank Size
First, let’s discuss how to measure the size of a bank. We can do so by looking at the number of customers, number of branches, and number of employees.
But perhaps the best way to measure bank size is by focusing on the total assets under management. This figure shows the actual size of a bank, regardless of how many employees, branches, or ATMs it has.
In our list of the largest banks in the U.S. below, you’ll find that we include each bank’s total assets so you can get a better idea of just how large it is.
Bank Services
We also thought it would be a great idea to briefly discuss how banks work and what they can do for you as a customer. Banks have been around since at least the 14th century. They offer a safe place for individuals and business owners to park their cash and work on various financial goals.
While every bank has their own unique lineup of services, most of them provide checking accounts, savings accounts, and loan services. Some go the extra mile with credit cards, wealth management services, and other conveniences.
Types of Banks
In addition, it’s wise to go over the types of banks at your disposal. The most common types of banks you’ll find include:
Retail banks: Retail banks serve the public and typically have branches and main offices. They provide a wide range of services, like checking and savings accounts, mortgage and loan services, auto financing, CDs, and individual retirement accounts (IRAs). Retail banks may be regional banks operating in various states.
Commercial banks: Also known as corporate banks, commercial banks gear their offerings to small business owners and larger corporate entities. In addition to the usual banking services, they may offer cash management, employer services, and commercial real estate services.
Investment banks: Investment banks are designed for corporate clients with complex needs, like mergers and acquisitions. These clients are large corporations, governments, and hedge funds.
Central banks: Central banks are not available to the public. Instead, they’re an independent institution that oversees the money supply and monetary policy in the country. The Federal Reserve Bank is the central bank in the U.S.
Banks vs. Credit Unions
While banks are quite popular, some customers use credit unions instead. While credit unions also offer banking services, like checking and savings accounts, they’re not for profit institutions that are managed by their customers or members.
Compared to banks, credit unions tend to deliver more personalized service. But they also provide fewer services and have fewer branches and ATMs. A credit union can make sense, depending on your unique goals.
20 Biggest Banks In The U.S.
Here’s an overview of the largest banks in the U.S.
1. JPMorgan Chase & Co.
Total Assets: $3.381 Trillion
Headquarters: New York City, New York
If you focus on consolidated assets, JPMorgan Chase earns the spot as the largest bank in the U.S. This investment bank is also a holding company for subsidiaries, including Chase Bank. Chase, which is J.P. Morgan’s consumer banking division, has more than 4,700 branches in the U.S. plus more than 30 branch locations abroad.
According to Chase, almost half of the households in the U.S. are Chase customers. It attracts digital savvy customers that value online banking and products with artificial intelligence (AI). In addition to consumer banking, JPMorgan Chase is a combined bank that offers commercial banking, asset and wealth management, and investment banking.
Chase offers some of the most popular cash back and travel credit cards that can earn you valuable rewards through their program, Chase Ultimate Rewards. Using these credit cards for everyday purchases can earn you travel points, cash back, and other benefits.
2. Bank of America Corp.
Total Assets: $2.440 Trillion
Headquarters: Charlotte, North Carolina
Bank of America is a multinational bank with nearly 66 million customers and small business clients across the globe. It has a few divisions, including Merrill, Bank of America Securities, and Bank of America Private Bank.
As a Bank of America customer, you can enjoy access to a wide variety of products and services as well as access to more than 4,000 branches and more than 17,000 ATMs.
Just like most big banks, Bank of America prides itself on a robust mobile app, the Zelle payment solution, and other intuitive digital tools. Its various service lines include consumer banking, corporate banking, credit cards, insurance, investment banking services, institutional banking, mortgage loans, private banking, private equity, and wealth management.
3. Citigroup
Total Assets: $1.720 Trillion
Headquarters: New York City, New York
Citigroup, which is widely known as Citi, is an investment bank and financial services firm. When Citigroup merged with Travelers Group in 1998, it became a major player in the financial space. Citibank, Citigroup’s retail banking division has more than 700 branches in the U.S. and over 1,800 branches outside the U.S.
Most of the U.S. bank branches are in Florida, California, New York, and Washington DC. Citibank manages over 138 million bank accounts and has 65,000 fee-free ATMs across the country. Over the years, it has earned high rankings for its digital money management tools, including one that shows customers a financial wellness score.
4. U.S. Bancorp
Total Assets: $582.25 Billion
Headquarters: Minneapolis, Minnesota
The parent company of U.S. Bank, Bancorp’s locations are mainly in the Midwest. It offers personal and business banking with more than 3,000 branches and 5,000 ATMs. Over the years, Bancorp has worked to become a responsible financial provider and earn a spot on the Ethisphere Institute’s World’s Most Ethical Companies list.
As a Bancorp customer, you can access information about your accounts through Google Home and Amazon Alexa. You may also download the handy mobile app to make mobile deposits and perform other services, like transactions via Zelle.
5. PNC Financial Services Group
Total Assets: $534.35 Billion
Headquarters: Pittsburgh, Pennsylvania
PNC is short for Pittsburgh National Corporation. PNC Financial Services is the bank holding company of PNC Bank, which has more than 2,000 branches across 21 states. It stands out among other large banks for its unique customer perks and products for individuals and business owners. The Virtual Wallet tool, for example, lets you manage your money online or on your mobile device.
You can keep your checking and savings accounts together or just stick to one type of account, depending on your particular needs. In addition to traditional banking services, PNC offers mortgages, home equity lines of credit, auto loans, personal loans and personal lines of credit, student loans, and student loan refinancing.
6. Wells Fargo
Total Assets: $1.71 Trillion
Headquarters: San Francisco, California
Wells Fargo made its debut in 1852 when it was first opened by investing partners, Henry Wells and William Fargo. It was initially designed as a bank and express delivery service for gold. Eventually, Wells Fargo expanded as a consumer bank to serve all types of customers with various banking needs. It is admired for its long list of offerings and the Wells Fargo mobile app that helps customers track their spending and simplify their bills.
While Wells Fargo has focused on consolidating and prioritizing digital banking services in recent years, it still has about 4,700 locations and more than 12,000 ATMs around the U.S.
In addition to personal and small business banking, Wells Fargo supports commercial banking, investing and wealth management, and investment banking.
7. Truist Financial Corporation
Total Assets: $532.08 Billion
Headquarters: Charlotte, North Carolina
Compared to the other large commercial banks on this list, Truist is fairly new. It was formed in 2019 as the result of one of the largest bank merger between BB&T and SunTrust.
Truist is made up of three major divisions, including Truist Bank, Truist Securities, and Truist Insurance Holdings. These divisions employ over 37,000 people that work in consumer and commercial banking, investment banking, mortgages, and insurance.
It offers a variety of noteworthy perks, such as no overdraft fees, a $100 negative balance buffer, and automatic upgrades. The bank also places a lot of emphasis on community involvement and giving back.
8. Goldman Sachs Group, Inc.
Total Assets: $501.91 Billion
Headquarters: New York City, New York
Goldman Sachs was founded in 1869 by Marcus Goldman, a German American shopkeeper. Its original purpose was to help merchants and small businesses with short-term funding. Eventually, Samuel Sachs joined Goldman in 1882. Today, Goldman Sachs has a reputation as a leading global investment banking, management, and securities firm.
In the fall of 2016, Marcus by Goldman Sachs, its online banking division made its debut and began to offer numerous financial products, like savings accounts, certificates of deposit, credit cards, and loans.
In addition to these offerings, Goldman Sachs provides asset management services, mutual funds, investment banking and management, prime brokerage, commodities, and commercial banking.
9. Charles Schwab Corporation
Total Assets: $407.90 Billion
Headquarters: San Francisco, California
Charles Schwab is a multinational financial services firm with a focus on investment accounts, such as individual retirement accounts (IRAs) and brokerage accounts.
You’ll find an extensive selection of funds with low expense ratios as well as commission-free stock and ETF trades. While there are over 360 Charles Schwab branches with financial consultants, you can take advantage of its services online.
Schwab also offers a high-yield checking account. Whether you’re new to investing or consider yourself a veteran, you can benefit from Charles Schwab.
10. TD Group U.S. Holdings
Total Assets: $405.22 Billion
Headquarters: Wilmington, Delaware
While TD Bank has roots in Canada, it’s been in the U.S. market since 2007 when it acquired Commerce Bancorp. There are more than 1,100 branches and 700 ATMs across fifteen U.S. states and Washington D.C.
TD Bank offers the typical lineup of banking products and services but is known for its branch convenience. Most branches have long hours, are open on the weekends, and provide curbside pickup for new debit cards.
If you prefer in-person banking, TD Bank is certainly worth exploring. Many of its accounts come with generous sign up bonuses and access to comprehensive online banking features, such as online bill pay, Zelle, and remote check deposit.
11. Capital One Financial
Total Assets: $388.44 Billion
Headquarters: McLean, Virginia
Since it was established in 1988, Capital One bank is one of the newer large banks on our list. In only a few decades, the bank has grown significantly, thanks to its credit card offerings in the early 90s.
Once 2016 came around, Capital One was named the third-largest credit card issuer in the U.S. These days, Capital One continues to offer credit cards as well as digital services through Capital One 360.
Capital One 360 stands out for its Capital One’s 360 Performance Savings account, which comes with no minimum opening deposit and no minimum balance requirements.
It also has a mobile banking app with mobile check deposit, customized alerts and notifications, Zelle, free credit score monitoring via CreditWise, and more. There are about 775 branches, 2,000 ATMs, and nearly 30 Capital One cafes.
12. Bank of New York Mellon
Total Assets: $365.10 Billion
Headquarters: New York City, New York
Bank of New York Mellon came about after a 2006 merger between Mellon Financial Corporation and The Bank of New York. The Bank of New York was originally founded in 1784 by Alexander Hamilton, the first Secretary of the Treasury of the U.S. Bank of New York Mellon is now one of the largest securities firms in the word.
It specializes in a number of solutions and services for corporations, insurance companies, banks, brokers, dealers, and other reputable clients in the financial industry. In addition, the bank offers private investment and wealth management services for wealthy clients.
13. State Street Corporation
Total Assets: $296.43 Billion
Headquarters: Boston, Massachusetts
State Street Corporation was founded in 1792 as a financial services and asset management company. It has more than 40,000 employees and a global presence in over 100 markets.
Its offerings include investment research and trading, investment management, and securities lending for clients, such as insurance companies, pension funds, and asset owners.
14. Citizens Financial Group
Total Assets: $226.53 Billion
Headquarters: Providence, Rhode Island
Citizens Financial Group, Inc. has been around since 1828. It owns Citizens Bank, its retail division and offers credit cards, deposit accounts, personal loans, student loans, refinancing, and a number of other financial services. Citizen Bank mainly operates in the Northeast and Midwest.
In addition to more than 2,700 ATMs, there are over 1,100 branches in New England states as well as Delaware, Michigan, Ohio, Pennsylvania, New York, and New Jersey. The bank provides extended call center hours, a streamlined online experience, and a highly rated mobile app.
15. Silicon Valley Bank
Total Assets: $211.82 Billion
Headquarters: Santa Clara, California
Silicon Valley Bank made its debut in 1983. Today, it serves as a full-service commercial bank for technology and life sciences companies. Aside from traditional banking services, Silicon Valley Bank offers foreign exchange, venture capital, and treasury management services.
It has supported innovation for several well-known tech companies, including Google and Facebook. Many people give it credit for establishing Silicon Valley.
16. Fifth Third Bank
Total Assets: $205.55 Billion
Headquarters: Cincinnati, Ohio
Fifth Third Bank is a subsidiary of Fifth Third Bancorp and known as one of the largest banks in the Midwest. It has approximately 1,100 branches that span across Ohio, Florida, Georgia, Kentucky, Illinois, Indiana, Michigan, North Carolina, Tennessee, and West Virginia.
As a customer, you can enjoy access to more than 50,000 ATMs across the country and no opening deposit requirements for checking and savings accounts.
In addition to deposit accounts, Fifth Third Bank financial institutions offer mortgages, auto financing, personal loans, insurance, and investing products. Products and services are available to business customers as well.
17. First Republic Bank
Total Assets: $197.91 Billion
Headquarters: San Francisco, California
First Republic Bank is a premier private bank with more than 80 branches across the country. Its vast lineup of products and services includes checking accounts, savings accounts, money market accounts, IRAs, CDs, and wealth management.
Business customers can take advantage of business loans, business lines of credit, commercial real estate loans, and small business loans. The bank focuses on philanthropy and constantly supports programs related to art and education.
18. Morgan Stanley
Total Assets: $191.35 Billion
Headquarters: New York City, New York
Morgan Stanley’s roots date back to 1935. Today, the bank is a reputable, multinational investment management and financial services company. It has over 700 locations in every state as well as Washington D.C.
Its investing division includes three portfolios, including the impact portfolio, market-tracking portfolio, and performance-seeking portfolio. Whether you’re a beginner investor or wealthy client, Morgan Stanley may be a solid pick.
19. KeyBank
Total Assets: $184.67 Billion
Headquarters: Cleveland, Ohio
KeyBank was founded in 1825 and is now considered a community bank with a presence in 15 states. It has more than 40,000 ATMs in its network and 1,000 full-service branches. The bank also partners with the AllPoint Network of over 40,000 ATMs nationwide.
Its standard services include checking accounts, savings accounts, home loans and mortgages, lines of credit, credit cards, investing, insurance, and debt consolidation. In 2021, KeyBank acquired several digital businesses including digital platform XUP Payments and GradFin, a student loan counseling fintech.
20. Ally Bank
Total Assets: $182.2 Billion
Headquarters: Sandy, UT
While it’s based in Utah, Ally Bank is an online only bank with a long list of digital banking solutions. Its deposit accounts come with no monthly maintenance fees or minimum balance requirements.
The bank also pays high yields on CDs and savings accounts than traditional banks with brick-and-mortar banks. As a customer, you can enjoy 24/7 customer services and access to more than 43,000 ATMs through the Allpoint network.
Bottom Line
As you can see, there are many large banks in the United States. Each one has its own unique perks and priorities. To choose the right bank, consider your location, needs, and preferences.
If you’re looking for personal banking services and prefer a digital platform, Goldman Sachs and its Marcus division may be the way to go. But if private wealth management is your top priority, you may be better off with Bank of New York Mellon. Best of luck in your search for the perfect large bank.
Largest Banks in the U.S. FAQs
What is a bank?
Put simply, a bank is a financial institution that can legally accept checking and savings deposits and distribute loans. Some banks also offer additional services like certificates of deposit (CDs), individual retirement accounts (IRAs) and wealth management.
What is the largest bank in the world?
The Industrial and Commercial Bank of China is the largest bank in the world. The bank’s assets add up to $4.324 Trillion.
What are the ten largest banks in the U.S.?
Ranked in total asset value, the ten largest banks in the U.S. include JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, U.S. Bancorp, PNC, Truist Bank, Goldman Sachs, Charles Schwab, and TD Group.
How do I choose a bank?
To choose the right bank, focus on what you’re looking for. For more personalized service, you might want to explore a community bank. But if you prefer branch locations across the country and a long list of offerings, one of the large banks on this list might be a better fit.
Is my money safe in a bank?
Your money is safe as long as the bank is insured by the Federal Deposit Insurance Corporation (FDIC). An FDIC-insured bank typically insures up to $250,000 per depositor. Note that you don’t have to purchase FDIC insurance. As long as you’re a customer at a bank that offers it, you’ll receive it automatically.
How does a commercial bank differ from a retail bank?
A commercial bank offers a variety of products and services to both individuals and businesses. Retail banks, on the other hand, focus their offerings to individual customers. If you own a business, you’d be better off with a commercial bank that can serve the financial needs of your organization.
Do online banks exist?
Absolutely! In today’s day and age, online banking is more popular than ever before, among larger banks and smaller banks. While some banks offer in-person and online services, other banks, like Ally Bank, solely operate online with no branch locations.
What are some other large banks not on this list?
Other big banks you might want to consider include First National Bank, Huntington Bank, Provident National Corporation, America Bank, and HSBC Bank USA.
A vesting schedule is a way for your employer to give you some incentive to stay with them.
To be 100% vested means to be able to take all of your retirement benefits with you if you leave or have been fired.
Depending on what type of plan you have- pension or 401k- will determine your vesting schedule.
Let me make something clear. What you contribute is always yours. The vesting schedule pertains to what your employer contributes e.g.; the 401k match. Here’s a look at the two different vesting schedules:
Defined Benefit (Pension) Plan
Pension plans are a dying breed but some people still have them. Defined benefit plan must vest at least rapidly as one of the following two schedules, assuming the plan is not top-heavy. Top-heavy has to do with making sure that each employee receives a fair share of retirement benefit as it relates to their salary.
Five-year cliff vesting, no vesting is required before five years of service. 100% vesting is required at five years of service. Referred to as a five-year cliff.
Three to seven-year graduated or graded vesting. The plan must provide vesting that is at least as fast as the following schedule:
Years of service
Vested Percentage
3
20%
4
40%
5
60%
6
80%
7
100%
So in the example above, if the employer uses the graded vesting schedule and you have been employed for 5 years, then you’ll be able to take 60% of the employer’s benefit with you.
At my previous firm, I was offered a small retention package to stay (not nearly what the boys at Merrill got) and it had a 7 year vest attached to it. Needless to say, I gave it up and started my own firm.
401k Vesting Schedules
Defined contribution plans must vest at least as rapidly as one of the following two schedules for all employers non-elected contributions and matching contributions:
Three-year cliff vesting. No vesting is required before three years of service, 100% vesting is required upon the completion of three years of service.
Two to six-year graduated or graded vesting.
The plan must provide vesting at least as fast as the following schedule. Note: These are the same vesting schedules used to top-heavy defined benefit plan.
Years of service
Vested Percentage
2
20%
3
40%
4
60%
5
80%
6
100%
The employer may choose a vesting schedule that is more favorable to the employee, but not less favorable than the cliff.
Example: ABC Company offers a 401(k) plan that has an employer match. The company has the following vesting schedule with respect to matching contributions: 25% vested after one year, 50% vested after two years, and 100% vested after three years.
Although the vesting schedule does not exactly match the vesting schedules posted above, it is acceptable because it’s more favorable to the employees than the vesting schedule listed above.
All years of service must be counted with few exceptions. Two of the more common exceptions are:
Years prior to the implementation of the plan.
Years prior to the age 18.
Both years prior to the implementation of the plan and years prior to age 18 may be considered at the choice of the employer, but it must be in the plan documents.
Employer contributions are 100% vested when:
Plan termination. Benefits become 100% vested in the event of a plan termination.
SEP, SARSEP, and SIMPLE IRA’s. All contributions to these are fully vested.
Attainment of normal retirement age. In the event of an employee attaining normal retirement
Under a 401(k) plan, elected deferrals, qualified non-elected contributions, and qualified matching contributions are 100% vested at all times.
Safe Harbor contribution is to a Safe Harbor 401(k) plan.
Plan requires two years of service for eligibility.
It’s very important to understand your vesting schedules when you start with a new employer. That could make the difference of walking with a good chunk towards your nest egg or walking away with nothing. Be sure to check your benefits manual and ask your human resources department the right questions.
The Traditional IRA and its offshoots (SEP, SIMPLE, rollover and Roth IRAs) play a leading role in helping millions of U.S. taxpayers invest for retirement. However, many IRA owners are unaware of the opportunity they have to consolidate their multiple IRAs by using a “Super IRA” strategy (most common is a rollover 401k).
An IRA consolidation strategy can lead to reduced fees and increased buying power. I’ve had several instances where an individual has had several old retirement plans from previous employers. That has included defined benefit plans, 401k’s, TSP’s, 403b’s and Keough plans. The paperwork alone was cumbersome, and consolidating has made tremendous sense.
If you like this article, please be sure to also check out 401k Tips: What Not To Do, Rollover IRAs Offer a Wide Range of Benefits, 7 Things To Know About The 2010 Roth IRA Conversion
IRA Consolidation Case Study
The following is a common scenario involving a worker (Patrick) who has changed jobs several times throughout his career. He has been diligent about saving for retirement, but his assets are scattered. An IRA consolidation strategy is suggested, and the section concludes with a three-step action plan for investors like Patrick.
Patrick’s Profile:
Frequent job changer, age 62, is approaching retirement.
He has lost track of his numerous retirement savings arrangements.
He turns to his advisor for help with simplifying his financial affairs.
During his career, Patrick has accumulated various retirement accounts but has lost track of the status of each. He is 62 years old and is thinking of retiring from his current job. He has three retirement plans with former employers [a profit sharing plan, a target benefit plan and a 403(b) plan], four Traditional IRAs, a SIMPLE IRA, two Roth IRAs, an Individual(k) plan he established when he owned his own business, and a Thrift Savings Plan he now has as an employee of the federal government.
He is also the beneficiary of his deceased wife’s nonqualified deferred compensation plan and her Traditional IRA. In an effort to simplify his life, he turns to his financial planner for help. This is a strong case for implementing the “Super IRA” consolidation strategy.
How to implement the Super IRA Consolidation strategy
Step 1: Understand the Rules
A person who owns multiple SEP IRAs and Traditional IRAs can combine them into one “Super IRA” at any time.
If the person also owns a SIMPLE IRA, he or she can transfer or roll it to a “Super IRA” after participating in the SIMPLE IRA plan for at least two years. The two-year period begins when the first SIMPLE IRA plan contribution is made to the individual’s SIMPLE IRA.
A “Super IRA” can receive ongoing SEP plan contributions and annual Traditional IRA contributions.
Ongoing SIMPLE IRA plan contributions must first be contributed to the participant’s SIMPLE IRA. If the individual has participated in the SIMPLE IRA plan for at least two years, he or she can transfer or roll over the SIMPLE IRA into one “Super IRA.” (Note: special rollover rules may apply.)
A “Super IRA” can receive rollovers of eligible assets from all types of qualified retirement plans [e.g., 401(k) plans, profit sharing plans, defined benefit plans, etc.], 403(b) plans, 403(a) plans and governmental 457(b) plans.
A Roth IRA cannot be transferred or rolled over into a “Super IRA.” Multiple Roth IRAs can be combined to create a “Super Roth IRA.” Under the Pension Protection Act of 2006, effective in 2008, participants in qualified plans, 403(b) plans and governmental 457(b) plans can directly roll over eligible plan assets to Roth IRAs if conversion rules are satisfied.
Spouse beneficiaries of qualified plans and SEP, Traditional and SIMPLE IRAs generally can consolidate their inherited accounts into their own “Super IRA.”
Step 2: Consider the Potential Benefits of a “Super IRA” Strategy
Increased buying power, which allows for more sophisticated investment strategies
One fee vs. multiple fees
Simplified investment tracking
Beneficiary organization and consolidation
Consistent service
Streamlined paperwork
Simplified retirement income planning
Step 3: Work With Your Advisor
Investors should work with their advisors to determine whether a “Super IRA” asset consolidation strategy makes sense for them.
In our scenario, Patrick’s planner asks him the following key questions:
Do you have the most recent statements from each of your retirement accounts?
What type of investments do the plans hold?
Are any of your retirement plans invested in employer securities?
Is your goal to consolidate your accounts as much as possible?
How long has it been since you first participated in the SIMPLE IRA plan?
Patrick’s goal is to consolidate as many of his retirement accounts as he can into one “Super IRA.” He obtains copies of his most recent retirement account statements to review with his advisor. He first participated in the SIMPLE IRA plan a year and a half ago. He does not hold employer securities as a plan investment.
After reviewing the statements, Patrick and his planner determine he could combine the following retirement accounts into a “Super IRA”:
Profit sharing plan
Target benefit plan
403(b) plan
Five Traditional IRAs (the four he owns outright and his inherited IRA)
Individual(k) plan
In another six months (two years after first participating in the SIMPLE IRA plan), he could transfer or rollover that balance to his “Super IRA” as well. Patrick cannot combine his two Roth IRAs into his “Super IRA,” although he could consolidate them into one “Super Roth IRA.” And he cannot roll over the nonqualified deferred compensation plan. Although he could combine the plans as outlined above into one “Super IRA,” it would be best for Patrick and his planner to carefully examine the types of investments currently held by the various plans to see if a rollover is the wisest course of action from a taxation standpoint.
For example, special tax rules apply to distributions of employer securities from qualified retirement plans. This would be case of NUA or Net Unrealized Appreciation. Keep in mind, a consolidation strategy may not always be suitable. An advisor, or a tax or legal professional, can help identify the best course of action to incorporate the best investment services.
The U.S. Bureau of Labor Statistics estimates that Americans change jobs about 10 times between the ages of 18 and 42. If job changers had a 401k account at just half of those positions, it would represent a significant money management challenge: multiple redundant investment portfolios and a mountain of account statements and investment documentation to sort through.
One flexible solution to simplify the task is to consolidate assets under a single account umbrella via a 401k rollover to IRA. Offered by many financial institutions, the rollover IRA can help you streamline your investments into a unified asset allocation plan. (Remember: In addition to 401k’s, this could also include 403b’s, 457’s, Pension Plans, Simple and SEP IRA’s)
If you enjoyed this article be sure to check out: How to Rollover Your 401k into a Roth IRA, Consolidate Retirement Assets with a Super IRA, How to do an In-Service 401k Distribution While You’re Still Working.
401k to Rollover IRAs Offer a Wide Range of Benefits
As compared with employer-sponsored retirement accounts, a rollover IRA can provide a broader range of investment choices and greater flexibility for distribution planning. Consider the following benefits rollover IRAs offer over employer-sponsored plans:
Simplified investment management. You can use a single rollover IRA to consolidate assets from more than one retirement plan. For example, if you still have money in several different retirement plans sponsored by several different employers, you can transfer all of those assets into one convenient rollover IRA.
More freedom of choice, control. Using a rollover IRA to manage retirement assets after leaving a job or retiring is a strategy that’s available to everyone. And depending on the financial institution that provides the rollover IRA, you could have a wide array of investment choices at your disposal to help meet your unique financial goals. As the IRA account owner, you develop the precise mix of investments that best reflects your own personal risk tolerance, investment philosophy and financial goals.
More flexible distribution provisions. While Internal Revenue Service distribution rules for IRAs generally require IRA account holders to wait until age 59½ to make penalty-free withdrawals, there are a variety of provisions to address special circumstances. These provisions are often broader and easier to exploit than employer plan 401k hardship withdrawal rules.
Valuable estate planning features. IRAs are more useful in estate planning than employer-sponsored plans. IRA assets can generally be divided among multiple beneficiaries, each of whom can make use of planning structures such as the stretch IRA concept to maintain tax-advantaged investment management during their lifetimes.In addition, IRS rules now allow individuals to roll assets from a company-sponsored retirement account into a Roth IRA, further enhancing the estate planning aspects of an IRA rollover. By comparison, beneficiary distributions from employer-sponsored plans are generally taken in lump sums as cash payments.
Efficient Rollovers Require Careful Planning
There are two ways to execute a 401k Rollover to IRA — directly or indirectly. It’s important you understand the difference between the two, because there could be some tax consequences and additional hurdles if you aren’t careful. With a direct rollover, the financial institution that runs your former employer’s retirement plan simply transfers the money straight into your new rollover IRA. There are no taxes, penalties or deadlines for you to worry about.
With an indirect rollover, you personally receive money from your old plan and assume responsibility for depositing that money from the 401k into a rollover IRA. In this instance, you would receive a check representing the value of the assets in your former employer’s plan, minus a mandatory 20% federal tax withholding. You can avoid paying taxes and any penalties on an indirect rollover if you deposit the money into a new rollover account within 60 days.
You’ll still have to pay the 20% withholding tax and potential penalties out of your own pocket, but the withholding tax will be credited when you file your regular income tax, and any excess amount will be refunded to you. If you owe more than 20%, you’ll need to come up with the additional payment when you file your tax return.
Potential Downsides of IRA Rollovers
While there are many advantages to consolidated IRA rollovers, there are some potential drawbacks to keep in mind. Assets greater than $1 million in an IRA may be taken to satisfy your debts in certain personal bankruptcy scenarios. Assets in an employer-sponsored plan cannot be readily taken in many circumstances.
Also, with a traditional IRA rollover, you must begin taking distributions by April 1 of the year after you reach 70½ whether or not you continue working, but employer-sponsored plans do not require distributions if you continue working past that age. (Roth IRAs do not require the owner to take distributions during his or her lifetime.)
Remember, the laws governing retirement assets and taxation are complex. In addition, there are many exceptions and limitations that may apply to your situation. Before making any decisions, consider talking to a financial advisor who has experience helping people structure retirement plans.