This content may include information about products, features, and/or services that SoFi does not provide and is intended to be educational in nature.
It is possible to lose money when you invest in a traditional or Roth IRA (Individual Retirement Account), depending on what investments you choose for your Roth. All investments can lose money — including those within any type of retirement account.
That’s why it’s important to invest your Roth in assets that reflect your risk tolerance. If you invest mostly in stocks, you are at a higher risk for losses in your account. If you invest in less volatile assets (e.g. bond funds), you may be at a lower risk for losses.
Are Roth IRAs safe? No investment account is ever 100% safe, but because retirement accounts are generally long-term investments, they offer the possibility of growth over time. Also, the more years you invest in a traditional or Roth IRA, the more time that retirement account may have to recover from any losses.
• It is possible to lose money in a Roth IRA depending on the investments chosen.
• Roth IRAs are not 100% safe, but they offer the potential for growth over time.
An IRA is a type of tax-advantaged account that may help individuals plan and save for retirement. IRAs can offer investors specific tax advantages that could be beneficial when compared with traditional brokerage accounts (which can be taxed as income).
There are also a few types of IRAs, with the most popular or well-known being the traditional IRA and Roth IRA account.
With a traditional IRA your contributions are pre-tax, meaning the amount you deposit in an IRA is deducted from your taxable income and is therefore not taxed until you withdraw the funds.
The key distinction is that contributions to Roth IRAs involve money that’s already been taxed, so it grows tax free, and withdrawals are also tax free. More on the differences between them below.
When the market takes a nosedive many of us start to panic about our retirement savings. I’ve seen this fear in my clients’ eyes countless times. The question on everyone’s mind is what happens to my IRA if the stock market crashes?
Let me tell you straight up – yes, your IRA can lose money when markets tumble. But that’s not the whole story, and understanding what really happens can help you sleep better at night.
The Truth About IRAs During Market Crashes
IRAs aren’t magical accounts that somehow escape market forces. They’re just containers holding your investments, and those investments will react to market conditions.
When the stock market crashes
- The value of stock investments in your IRA will likely decrease
- Your account balance will show a decline
- You haven’t actually “lost” money unless you sell those investments
- Your IRA structure (traditional or Roth) remains intact
According to SoFi’s financial experts, “It is possible to lose money when you invest in a traditional or Roth IRA, depending on what investments you choose. All investments can lose money — including those within any type of retirement account.”
Can I Lose Everything in My IRA?
One question I hear often is whether you could lose your entire IRA in a market crash. Let me put your mind at ease – this is extremely unlikely unless you’ve made some very unusual investment choices.
SoFi points out, “It’s unlikely that you’d lose your entire Roth IRA’s value. Most fees, penalties, and taxes are levied as a percentage of that value, so they would not be able to fully drain the account.”
For you to lose everything, we’d need to see an “all-out collapse” where most assets see their values reduced to zero. If that happens, we’d all have much bigger problems than our retirement accounts!
How Different Investments in Your IRA React to Market Crashes
Not all investments within your IRA will react the same way during market turmoil. Here’s what typically happens:
| Investment Type | Typical Reaction During Market Crash |
|---|---|
| Stocks | Often experience significant declines |
| Bonds | Usually less volatile; may even increase in value as interest rates fall |
| Cash/Money Market | Typically maintains value but earns minimal returns |
| Target Date Funds | Decline less than stock-only portfolios (if you’re close to retirement) |
| Real Estate Funds | May decline but sometimes with less correlation to stock market |
Why Time Horizon Matters for Your IRA
Your age and retirement timeline are CRUCIAL factors in how concerned you should be about market crashes affecting your IRA.
As SoFi notes, “Investors who are many years away from a financial goal, such as retirement, may opt to hold more stocks to take advantage of their growth potential. With many years to go before they need to tap their investments, these investors have time to ride out the market’s swings.”
- Younger investors (20s-40s): Market crashes can actually be opportunities! You’re buying investments at discount prices with decades for recovery.
- Mid-career investors (40s-50s): You still have time for recovery, but should be gradually reducing risk.
- Near retirement (55+): Market crashes can be more concerning, which is why your portfolio should already have less stock exposure.
5 Smart Strategies to Protect Your IRA from Market Crashes
Instead of panicking during market crashes, implement these strategies:
1. Diversify Properly
Diversification is your best defense. SoFi explains, “Diversification helps minimize the effects market risk can have on an investor’s portfolio.”
This means spreading your investments across:
- Different asset classes (stocks, bonds, alternatives)
- Various sectors (tech, healthcare, consumer goods)
- Geographic regions (US, international developed, emerging markets)
- Company sizes (large, mid, small cap)
2. Adjust Based on Your Time Horizon
As you get closer to retirement, gradually shift your portfolio to be more conservative:
- Young (20s-30s): 80-90% stocks may be appropriate
- Mid-career (40s-50s): 60-70% stocks could make sense
- Near retirement (55+): 40-60% stocks might be prudent
- In retirement: 30-50% stocks depending on your situation
3. Don’t Panic Sell
This is probably the BIGGEST mistake I see investors make. When markets crash, emotional reactions lead to selling at the worst possible time.
Remember: market crashes are temporary. Historically, markets have always recovered and reached new heights given enough time.
4. Consider Roth vs. Traditional IRAs
Both types of IRAs are vulnerable to market crashes, but they have different tax implications:
- Traditional IRA: Contributions are pre-tax, and withdrawals are taxed as income in retirement
- Roth IRA: Contributions are post-tax, but withdrawals in retirement are tax-free
SoFi highlights that “contributions to Roth IRAs involve money that’s already been taxed, so it grows tax free, and withdrawals are also tax free.”
During market crashes, Roth IRAs can provide flexibility since you can withdraw contributions (not earnings) without penalties if absolutely necessary.
5. Continue Contributing During Downturns
When markets crash, don’t stop contributing to your IRA! This is when you’re buying investments “on sale.”
Think of it like this: would you rather buy something at full price or at a 25% discount? Market downturns let you accumulate more shares for the same dollar amount.
Common Mistakes People Make With IRAs During Market Crashes
I’ve seen these mistakes too many times:
- Withdrawing money early: This can trigger penalties and taxes while locking in losses
- Abandoning investment strategy: Emotional decisions rarely work out well
- Moving everything to cash: This guarantees you’ll miss the recovery
- Trying to time the market: Even professionals rarely get this right
- Checking account balances daily: This leads to anxiety and poor decisions
Real Talk: My Personal Experience With Market Crashes and IRAs
I’ll never forget 2008 when my own IRA dropped nearly 40% in value. It was terrifying! But I kept contributing, stayed invested, and within a few years, my account had not only recovered but grown significantly.
Then COVID hit in 2020, and markets plunged again. By this point, I’d learned my lesson and actually increased my contributions during the downturn. This turned out to be one of the best financial moves I’ve ever made.
The lesson? Market crashes are inevitable parts of investing. They’re not the end of the world – they’re opportunities if you maintain perspective.
Special Considerations for Different Types of IRAs
Different IRA types have unique considerations during market crashes:
Traditional IRAs
- Required Minimum Distributions (RMDs) start at age 73, meaning you might have to withdraw money during down markets
- Withdrawals are taxed as income, which can be problematic if you need emergency funds
Roth IRAs
- More flexible during emergencies since contributions can be withdrawn without penalties
- No RMDs during your lifetime, giving investments more time to recover
SEP and SIMPLE IRAs
- Used by small business owners and self-employed individuals
- Similar investment considerations to traditional IRAs
FAQ: Common Questions About IRAs During Market Crashes
Q: Should I convert my Traditional IRA to a Roth IRA during a market crash?
A: This can be a smart strategy! Converting when account values are lower means paying taxes on a smaller amount.
Q: What happens if I need money from my IRA during a crash?
A: Try to avoid withdrawals if possible. For Roth IRAs, you can withdraw contributions (but not earnings) without penalties. For Traditional IRAs, withdrawals before 59½ typically incur a 10% penalty plus taxes.
Q: Should I stop contributing to my IRA during market downturns?
A: Absolutely not! This is usually the best time to contribute as you’re buying investments at lower prices.
Q: How long do market crashes typically last?
A: The average bear market lasts about 9-10 months, though some can be shorter or longer.
Q: Can I protect my IRA completely from market crashes?
A: Only by holding cash or very conservative investments, but this comes at the cost of long-term growth potential.
The Bottom Line on IRAs and Market Crashes
Market crashes are scary, especially when they affect your retirement savings. But they’re also normal, inevitable parts of investing. What happens to your IRA during a crash depends largely on:
- What investments you hold
- How much time you have before retirement
- Your emotional response to the situation
- Whether you maintain your investment strategy
Remember what SoFi wisely points out: “retirement accounts are generally long-term investments, they offer the possibility of growth over time. Also, the more years you invest in a traditional or Roth IRA, the more time that retirement account may have to recover from any losses.”
Don’t let fear of market crashes keep you from investing for retirement. With proper diversification, a long-term perspective, and the discipline to stick to your plan, your IRA can weather market storms and help secure your financial future.
Have you experienced a market crash with your IRA? How did you handle it? I’d love to hear your stories in the comments!
Can You Lose Money in a Roth IRA?
Now, to the main question: Can a Roth IRA lose money? The answer is yes, it can. This is one of the main differences between a Roth IRA vs. savings: Investing involves risk, whereas parking your money in the bank usually does not (with the exception of inflation risk).
There are several reasons that your Roth IRA may lose money.
Given that the money in retirement accounts, including IRAs, is typically invested, the overall value of the account is subject to the whims of the market. That means that if the market experiences a downturn or correction, your Roth IRA balance is likely to decline as well.
That’s not a certainty, however, as IRAs are generally invested in a range of assets, not all of which may be affected by larger market conditions.
Your Roth IRA can also lose money if you withdraw funds from it prematurely, and thus, are forced to pay early withdrawal penalties. Roth IRAs are complicated, however, in that your contributions can be withdrawn at any time. But you have to be careful with earnings.
If you withdraw earnings from your Roth IRA before age 59 ½ , you’ll likely be assessed a 10% penalty by the IRS.
Depending on the type of IRA you have, you may also need to pay ordinary income taxes, too.
You may want to consult a tax professional to make sure you understand Roth IRA rules that can trigger penalties.
It’s also possible to “lose money” in the sense that you miss out on market gains over time by investing in your Roth IRA too late. Time is an important factor in investing and saving for retirement, and if you start relatively young, time will work for you as the markets tend to rise over the years.
But if you’re about to hit retirement age and have only been investing in your Roth IRA for, say, a few years, you likely missed out on many years’ of appreciation by investing too late. This is why it’s generally a good idea to start funding an IRA as soon as possible.
It’s possible to contribute too much to your Roth IRA, which may end up costing you. There are limits to how much you can contribute each year. For tax years 2024 and 2025, the annual contribution limit for Roth IRAs is $7,000. These IRAs allow for a catch-up contribution of up to $1,000 per year if you’re 50 or older. If you blow past that maximum, you must withdraw the excess amount or it can trigger a 6% tax penalty from the IRS.
Note that if your modified adjusted gross income (MAGI) reaches a certain amount, you cannot contribute the maximum amount to a Roth IRA. In 2024, those amounts are $146,000 for single filers and $230,000 for those married and filing jointly. In 2025, those amounts are $150,000 for single filers and $236,000 for those married and filing jointly.
Allowable contributions are gradually reduced up until certain MAGI caps, at which point you cannot contribute to a Roth IRA at all. In 2024, those caps are $161,000 for single filers and $240,000 for married filing jointly, and in 2025, $165,000 for single filers and $246,000 for married filing jointly.
There are also fees to consider. Someone manages your Roth IRA, and they don’t do it for free. As such, you may incur managerial or custodial fees that can affect your account’s overall balance, in addition to the cost of the investments themselves.
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By Austin Kilham. February 26, 2025 · 10 minute read
This content may include information about products, features, and/or services that SoFi does not provide and is intended to be educational in nature.
It is possible to lose money when you invest in a traditional or Roth IRA (Individual Retirement Account), depending on what investments you choose for your Roth. All investments can lose money — including those within any type of retirement account.
That’s why it’s important to invest your Roth in assets that reflect your risk tolerance. If you invest mostly in stocks, you are at a higher risk for losses in your account. If you invest in less volatile assets (e.g. bond funds), you may be at a lower risk for losses.
Are Roth IRAs safe? No investment account is ever 100% safe, but because retirement accounts are generally long-term investments, they offer the possibility of growth over time. Also, the more years you invest in a traditional or Roth IRA, the more time that retirement account may have to recover from any losses.
• It is possible to lose money in a Roth IRA depending on the investments chosen.
• Roth IRAs are not 100% safe, but they offer the potential for growth over time.
• Market fluctuations and early withdrawal penalties can cause a Roth IRA to lose money.
• Investing late or contributing too much can also result in potential losses.
• Diversification and considering time horizon can help mitigate risks in a Roth IRA.
An IRA is a type of tax-advantaged account that may help individuals plan and save for retirement. IRAs can offer investors specific tax advantages that could be beneficial when compared with traditional brokerage accounts (which can be taxed as income).
There are also a few types of IRAs, with the most popular or well-known being the traditional IRA and Roth IRA account.
With a traditional IRA your contributions are pre-tax, meaning the amount you deposit in an IRA is deducted from your taxable income and is therefore not taxed until you withdraw the funds.
The key distinction is that contributions to Roth IRAs involve money that’s already been taxed, so it grows tax free, and withdrawals are also tax free. More on the differences between them below.