Can an Individual Retirement Account (IRA) Lose Money?

Losing all your Individual Retirement Account (IRA) funds may seem unlikely; that would require a massive stock market crash to doom all assets to zero – but losses are possible nonetheless.

Losing investments within an IRA can be disastrous; even the most diversified portfolios can experience decline over time and the early withdrawal penalty can cut into earnings significantly.

1. Lost or Stolen Assets

An Individual Retirement Account (IRA) is a savings vehicle designed for long-term investing, designed to work on autopilot for decades. While 401(k) plans or workplace-based retirement accounts can easily slip out of sight, an IRA’s easy accessibility makes it more likely that it will get forgotten about.

Most IRA accounts invest in stocks, bonds and mutual funds that are vulnerable to market fluctuations; as a result, market fluctuations could cause significant losses on balances held within them.

If an IRA becomes dormant for an extended period, its institution must notify the state in which it’s situated; then, under what is known as escheatment laws, assets could potentially be claimed back by state government and claimed as theirs by them.

If you suspect your IRA has been misappropriated or lost, contact your bank or investment firm as they should have a system in place for locating missing accounts and helping recover the funds. Furthermore, look in password management apps, tax documents and hard copies files for signs.

2. Unclaimed Funds

An unexpected market downturn could prompt many IRA owners to panic sell investments quickly, leading them to incur significant losses. Doing this runs the risk of forgoing long-term gains when they later reenter the markets; plus any potential growth generated from remaining holdings could also be lost.

Depending on your state’s rules, dormant IRAs can become abandoned and turned over to them through a process known as “escheat,” depending on when their account owner reaches required minimum distribution age (RMD). Many states use inactivity following RMD age as grounds for abandonment and return.

If this happens to your IRA, proving ownership may prove challenging; to increase your odds of success, investigate password management apps, email and tax returns for clues to prove ownership. When calling your custodian to discuss what steps need to be taken next, be prepared to provide your Social Security number and possibly fill out forms as proof.

3. Lost or Stolen Custodians

An important feature of an IRA is that its assets cannot be directly interacted with by you directly, since such actions would constitute illegal transactions (i.e. receiving personal benefit). Therefore, you cannot buy property within it to live or let others use, nor borrow against or lend against its value.

However, criminals could take advantage of this feature to gain access to your IRA funds by impersonating a legitimate custodian or purchasing investments on your behalf. Protect yourself against risks by independently verifying information contained within your account statements, including prices and asset values. This can be accomplished through professional valuation or market expert review services or tax assessment records. Alternative investments such as those found in real estate partnerships or promissory note interests often lack liquidity due to extended holding periods, restrictions on redemptions or limited markets – or a combination of factors. For this reason, proper evaluation and valuation procedures must be in place in order to avoid losses on these investments.

4. Lost or Stolen Taxes

Investments held within an IRA may be subject to market fluctuations that cause it to lose money; this is particularly true during periods when stock prices decline significantly. There are options such as certificates of deposit (CDs) and fixed rate IRAs that provide greater security from such losses.

If you own an IRA and haven’t logged in for three to five years, by law your custodian must report it as abandoned and unclaimed, giving the state treasurer full control of your funds.

Scammers recognize that an IRA represents an attractive target. Unfortunately, fraud victims must pay income taxes on distributions they never received or benefitted from; this can be devastatingly impactful on older investors. A federal district court recently ruled that scammers must pay income tax on stolen IRA funds; with this ruling it becomes even more vital to check password management apps, emails, and hard-copy files for clues to finding your custodian of IRA accounts.


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