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How Does NAIC Govern IRAs?

Original post by Melinda Hill Mendoza of Demand Media

The National Association of Insurance Commissioners (NAIC) is an organization that supports state insurance commissioners. Insurance companies are regulated on a state-by-state basis. The NAIC creates policies that each state can adopt to regulate insurance companies. The NAIC doesn't govern individual retirement accounts (IRAs). IRAs that are comprised of annuities fall under the governance of the state that issued the annuity policy. Many states adopt NAIC guidelines in regulating insurance products.

State Governance

If your IRA is a fixed annuity, it falls directly under the authority of the state that issued the annuity policy. A fixed annuity is a saving vehicle with an attached interest rate that may vary from year to year. You can opt to annuitize your annuity, which means having your savings paid to you monthly as a guaranteed income for life. States govern insurance companies by levying fines against insurance companies that violate laws. States can also suspend the licenses of individual sales agents and suspend insurance companies from selling any or all products in that state.

IRA Governance

The rules of how much money can be contributed to an IRA, the tax benefits of an IRA and when you can withdraw money from an IRA are all set by the Internal Revenue Service (IRS). Each financial product within an IRA will likely have a governing body attached to it. For example, if you open an IRA CD at your bank, the CD and your other bank deposits are protected by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. The coverage is limited to $250,000 per depositor per bank. The National Credit Union Administration (NCUA) provides identical deposit insurance coverage.

FINRA

The Financial Industry Regulatory Authority (FINRA) is an independent organization that regulates securities firms. Securities firms sell stocks, bonds and mutual funds. If your IRA account is held by a securities firm, the firm is regulated by FINRA. FINRA registers securities firms and enforces regulations by levying fines and suspending individual brokers and investment firms. FINRA also oversees variable annuities. Variable annuities are insurance products, but the premiums are invested into securities, which are subject to FINRA regulations as well as state regulations.

SEC

The Securities and Exchange Commission (SEC) is a government commission that also regulates securities firms and brokers. The difference between the SEC and FINRA is that the SEC is a government entity, while FINRA is independent. The SEC also enforces securities laws by bringing lawsuits against individuals and companies that violate securities laws. If your IRA is comprised of securities such as stocks, bonds and mutual funds, those products also fall under the governance of the SEC.

                   

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About the Author

Melinda Hill Mendoza has been writing professionally for over 10 years. She worked as an editorial assistant for Forward Movement Publications in Cincinnati, Ohio. She wrote for several years for allmusic.com and edited and wrote a chapter for a book with Wooster Press. She graduated from Miami University in Ohio with a Bachelor of Arts in English.

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