Your IRA is losing money because the investments inside it have dropped in value, fees are quietly eating into your balance, or both. An IRA is just a container with tax advantages. What actually drives your balance up or down are the stocks, bonds, and funds held inside it. Understanding which of these forces is hitting your account helps you decide whether to act or simply wait it out.
Your Investments Dropped in Value
This is the most common reason. If your IRA holds stock funds, your balance rises and falls with the market. After two years of strong gains, major investment firms have lowered their expectations for U.S. stocks going forward. Vanguard projects 10-year nominal returns of 3.5% to 5.5% for U.S. equities, and GMO expects large-cap U.S. stocks to deliver negative 6% real returns (after inflation) over the next seven years. Elevated stock valuations, meaning prices are high relative to what companies actually earn, are the main constraint. When stocks are expensive, they’re more vulnerable to pullbacks.
A bad quarter or even a bad year doesn’t mean your IRA is broken. Stock markets have historically recovered from downturns, but recoveries can take months or years. If you’re decades from retirement, a temporary decline is the price of admission for long-term growth. If you’re close to retirement, the decline stings more because you have less time to recover, which is why your investment mix matters so much.
Bond Funds Can Lose Money Too
Many people assume the bond portion of their IRA is safe. It’s not immune to losses. When market interest rates rise, the value of existing bonds falls. The SEC describes this like a seesaw: one end is interest rates, the other is bond prices. When rates go up, prices come down. This applies to all bonds, including U.S. government bonds.
Here’s why. If you hold a bond fund full of bonds paying 3% and new bonds start paying 4%, nobody wants to buy the old 3% bonds at full price. The fund’s value drops to reflect that. Two factors make this worse: longer-maturity bonds lose more value than short-term bonds when rates rise, and bonds with lower coupon rates (the interest they pay) fall harder than those with higher coupons. So if your IRA holds a long-term bond fund, it can swing more than you’d expect from something labeled “fixed income.”
This doesn’t mean bonds are bad. They still provide income and tend to be less volatile than stocks over time. But if you checked your IRA during a period of rising interest rates and saw a decline, your bond holdings are likely part of the story.
Fees Are Shrinking Your Balance
Even when markets are flat, fees can pull your balance down. There are several layers of fees inside most IRAs, and they’re easy to miss because they’re deducted automatically.
- Expense ratios: Every mutual fund or ETF charges an annual fee expressed as a percentage of your investment. An expense ratio of 0.50% on a $100,000 balance costs you $500 a year. Index funds often charge 0.03% to 0.10%, while actively managed funds can charge 0.50% to 1.00% or more.
- Advisory fees: If a financial advisor manages your IRA, they typically charge 0.25% to 1.00% of your account value per year, on top of the fund expense ratios.
- Account maintenance fees: Some IRA custodians charge annual account fees, inactivity fees, or transfer fees. These are often $25 to $75 per year but can be higher.
Individually, these sound small. Combined, they compound against you. An IRA paying 1.5% in total annual fees needs to earn 1.5% just to break even before your balance grows at all. In a flat or down market, fees turn a small loss into a bigger one. Check your account statements or the fund pages on your brokerage’s website to see exactly what you’re paying.
You Took a Withdrawal
If your balance dropped suddenly rather than gradually, check whether a distribution was taken. Beyond the amount withdrawn, taxes and penalties can make the hit larger than you expected. Withdrawals from a traditional IRA before age 59½ are subject to income tax plus a 10% early withdrawal penalty. That means a $10,000 early withdrawal could cost you $2,200 to $3,700 in combined federal taxes and penalties, depending on your tax bracket.
SIMPLE IRAs carry an even steeper penalty. If you withdraw within the first two years of participating in the plan, the additional tax jumps to 25% instead of 10%. Roth IRAs work differently: you can always withdraw your contributions tax-free and penalty-free, but earnings withdrawn early may be subject to taxes and the 10% penalty.
Some brokerages also withhold taxes automatically when you take a distribution, which reduces the amount deposited into your bank account and shows up as a lower IRA balance.
Your Investment Mix May Not Match Your Timeline
The most actionable thing you can do when your IRA is losing money is look at what’s inside it and ask whether that mix makes sense for when you plan to use the money. A 30-year-old with a portfolio of 90% stocks should expect sharp drops along the way, but has decades to recover. A 60-year-old with that same mix is taking on more risk than they likely need to.
Target-date funds, which automatically shift from stocks to bonds as you approach a chosen retirement year, exist specifically to solve this problem. If you’re not using one, compare your current stock-to-bond ratio against your comfort level and your timeline. A general rule of thumb: the closer you are to needing the money, the more you want in short-term bonds and stable-value funds, and the less you want in volatile stock funds.
When a Loss Is Normal vs. Worth Investigating
A decline of 5% to 15% in a stock-heavy IRA during a market downturn is normal. It has happened repeatedly throughout market history and will happen again. If your IRA dropped roughly in line with the broader market, your account is working as expected, even if it doesn’t feel that way.
A loss worth investigating looks different. If your IRA is losing money while the overall market is up, you may be in poorly performing funds. If your balance is declining steadily in small amounts with no obvious market drop, fees or automatic withdrawals may be the cause. If a single holding cratered, you may be too concentrated in one stock or sector. Log into your account and look at the performance of each individual fund compared to a simple benchmark like a total stock market index fund. If one holding is dragging everything down, that’s a sign to diversify.
Selling everything and moving to cash stops the bleeding, but it also locks in your losses and means you’ll miss the recovery. Historically, some of the market’s best days have come shortly after its worst ones. Staying invested through volatility, with a mix that matches your timeline, has consistently outperformed trying to time the market’s ups and downs.