Can You Lose Money in an IRA? Understanding Retirement Losses and Your Options

Your IRA or 401(k) represents years of disciplined saving, yet watching your balance shrink is one of the most anxiety-inducing experiences for any investor. The market turbulence of recent years has taken a toll on many portfolios, and some retirement accounts have struggled more than others. If you’re asking yourself “can you lose money in an IRA?”, the answer is yes—and understanding why, plus knowing how to respond, can help you regain control.

Why Retirement Accounts Experience Losses

Losses in your IRA or 401(k) aren’t unusual during volatile market conditions. Whether the broader stock market is underperforming or your specific holdings are lagging, portfolio declines happen. The key is recognizing whether this reflects normal market cycles or a signal that your investment strategy needs adjustment.

If your account is losing value rapidly, it may indicate that your current allocation no longer matches your risk tolerance or financial goals. Market movements can shift the balance of your holdings—what seemed like a diversified portfolio years ago might now concentrate too much exposure in a single volatile sector.

Take a Strategic Look at Your Holdings

Before making any dramatic changes, conduct a thorough review of your investments. First, verify that you’re actually as diversified as you believe. The value fluctuations of different assets may have shifted your portfolio’s composition since you initially invested.

If your IRA allows individual stock selection, scrutinize each position carefully. A stock that has consistently declined in value may warrant replacement with a more promising alternative—but this selective pruning differs significantly from panic-selling your entire equity position.

Consider reallocating toward broad market index funds, which provide meaningful diversification without requiring you to pick individual winners. This approach removes the stress of company selection while maintaining exposure to growth opportunities.

Continue Contributing Despite Current Challenges

A natural instinct when watching your IRA or 401(k) balance decline is to pause contributions. Resist this urge. Continuing to fund your retirement plan remains crucial, especially if it enables you to diversify further across different investments.

Moreover, traditional IRA and 401(k) contributions deliver immediate tax advantages. Money you contribute reduces your taxable income for that year—a benefit that becomes even more valuable if your earnings have risen and you’ve entered a higher tax bracket. The tax savings alone justify ongoing contributions regardless of current market conditions.

The Bigger Picture: Recovery Is Possible

Losing money in an IRA feels discouraging, but sustained losses don’t define your retirement trajectory. Market cycles shift, and recovery often follows downturns. If you’ve made thoughtful adjustments to your portfolio and maintained consistent contributions, you position yourself to benefit from the next phase of market expansion.

The temporary nature of losses is what separates long-term retirement investing from short-term trading. By staying the course and making calculated portfolio refinements rather than reactive decisions, you can transition from a pattern of decline to genuine wealth accumulation over time.