Can IRA Money Be Lost?
An Individual Retirement Account, or IRA, can be an effective savings vehicle for retirement savings, yet like all investments it can experience value loss over time.
An investment that fails can reduce your IRA to nothing; but fees related to management or account maintenance could eat away at its value as well.
It is especially true if your IRA consists of investments with decreasing value, like stocks.
An Individual Retirement Account, or IRA, provides an affordable way of investing in stocks, bonds and certificates of deposit – but investing is still risky business with potential for loss.
Contrary to 401(k)s, which are tied directly to workplace retirement plans, IRAs allow you to select among a wider variety of investments – providing more freedom when changing up your investment strategy ahead of retirement.
Important to keep in mind is that IRA funds should only ever be accessed during retirement and any withdrawal prior to age 59 1/2 is subject to ordinary income taxes and a 10% penalty. There may be exceptions, including medical emergencies or buying your first home; otherwise it’s generally best to delay withdrawals until later in life.
Many financial experts advise keeping retirement savings in an IRA as long as possible, particularly during times when markets experience volatility. Over time, markets will recover their balance and your losses can be restored with additional gains made over time.
However, there may be certain circumstances under which it is acceptable to withdraw funds without incurring penalties. Common situations include purchasing your first home or paying tuition. You must wait 60 days before they can be reinvested into an IRA – each year only one rollover is allowed.
As well, those aged 73* must also adhere to IRS requirements regarding taking annual required minimum distributions (RMD), with missed RMD penalties ensuing in severe penalties.
One of the leading causes of IRA losses is fluctuations in the stock market. Your investments can suffer when stocks you own within an IRA lose value or interest rates increase, leading to their value falling over time.
At first, when opening an IRA, you likely considered carefully how to allocate your money between stocks and bonds; over time however, your asset allocation percentages may shift and you could find that one category of investment has more weight than others.
Rebalancing is one way of maintaining an optimal portfolio balance, by selling investments that are overperforming and buying those under-performing regularly. Rebalancing doesn’t need to happen frequently – one-yearly checks often suffice – especially if working with tax-deferred accounts such as an IRA.
IRAs and 401(k)s do not guarantee growth and may experience losses, which is part of the inherent risk in investing; however, you can reduce this risk through careful planning and an effective investment strategy.
Long-term buy-and-hold strategies such as low-cost index funds are ideal investments for an IRA; however, diversifying it is key so as to weather short-term losses while meeting long-term goals.
Some investors use tax-loss harvesting, an investment technique known as tax loss harvesting, to take advantage of losses in one investment and repurchase it at a reduced price in another account. This strategy may be applied both within traditional and Roth IRA accounts; however, under traditional IRA rules collectible assets like artwork, rugs, antiques coins and tangible personal property such as precious metals such as gold silver platinum are prohibited; self-directed IRAs however allow investing in collectible assets alongside real estate projects and crowdfunding initiatives.