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Can You Lose Money In A Roth IRA? Yes, But Only In These 3 Situations

Thinking about retirement conjures up all kinds of thoughts. The first thing you think about is how much time you’ll finally get to spend spoiling your grandchildren. After that, you think about vacation and doing all the things that you’ve always wanted to do. Somewhere down the line, the thought of money crosses your mind.

Will you have enough money to get you through retirement? Could it be possible that somehow your Roth IRA loses value over time? Hopefully, by the time you’re dong reading this, you’ll have a better understanding of how it’s possible to lose money with your Roth IRA.

Can you lose money in a Roth IRA? Yes, it is possible to lose money, but with that said, your Roth IRA is one of the best investments you’ll ever make.

3. Penalties for Early Withdrawal

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You will be charged a 10% fee for early withdrawal. If you think about how much 10% is, that in itself can destroy any gains that you’ve experienced with your Roth IRA investments.

You probably already know that anything over 10% in the world of investing is considered a good return. If you withdrawal your money before you’re 59 ½ old, then you will receive a penalty. If you didn’t read the fine print before setting up your Roth IRA, then this might come as a surprise to you.

There are two exceptions when it comes to withdrawing your money early from your Roth IRA that won’t result in a penalty.

The two exceptions that won’t result in a penalty for early withdrawal are health insurance premiums, and if you lose your job. if you don’t have the money to pay your health insurance premiums, then the money can be taken out of your Roth IRA without any penalty.

Also, if you lost your job, it’s possible to withdraw cash from your Roth IRA without any penalties. However, the average person reading this will face penalties since most withdrawals aren’t the result of uncovered premiums or a loss of a job.

2. Not Enough Time to Compound

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As you probably are well aware of the stock market and other financial institutions have up years and down. Not all of your investments are going to be home runs. Some years you might lose a little money and others you come out like a bandit. You might also be behind the eight balls because you started to invest in your Roth IRA late in the game.

You would rarely have less money in your Roth IRA account from one year to the next, but it is possible. If you’re putting money in your account and not allowing it to stay dormmate, then at the very least, you should have that extra money in there.

Time is your friend when it comes to investing. It’s always best to begin investing in your retirement at the earliest time possible. It can’t be stressed enough that you should start saving as early as you can. If you’re someone fresh out of college, pay off your student loans, and then get on with saving for retirement.

If you put it off, then you’ll end up waiting so long that it might not be possible. Worse yet, you’ll start to save in your Roth IRA, and you notice one day that you have less in there than what you did a year ago.

1. The Market Crashes And You Take A Significant Hit

There have been considerable stock market crashes within the past few decades. If you’re young and the market goes down, then there’s not much to worry about. You can rest assured that by the time you retire that the market will swing back up the other way.

Anyone who is inching near retirement has to worry if the stock market is down or if it’s crashing. Sometimes the market does crash, and when it does, you’re going to lose a whole lot of money. it does happen, and it’s something that you must prepare yourself for.

If you’re in the midst of a market crash and retirement isn’t on the horizon, then it’s not that big of a deal. You only need to weather the storm until the market balances out. It’s also vital that you realize that when the market is down, it’s going to go back up someday.

You always want to invest your money when stocks are cheap so you can get the best return on your month. If you are in a down market, then consider spreading your money across investments that are traditionally seen as being less risky.

Investments carrying less risk are bank CDs, mutual funds, and bonds. You can never be 100% that your investments will last the test of time, but by taking less riskier approaches, you can mitigate your risk potential.

Final Words: No Investment is Safe from Loss

It doesn’t matter what you’re investing in; there’s always the potential for loss. You see, the reason why there’s the reward is because of the possibility of loss. Where there is no risk, there will never be a reward. If you’re in your 20s, then don’t even worry about the markets going up and down.

Stay busy working and keep on investing as much as you can, so your retirement is a good one. If you’re in your 50s or beyond, then it’s understandable why you might be a little nervous when you see the market going down.

You can easily find yourself in a situation where it feels like you’re in a constant state of panic while watching the financial markets. You do need to be aware of what’s going on, but you also need to live your life. Always watch what’s happening to your money, but don’t obsess about it.

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You will find that over time, the markets even themselves out, and the return is better than if you kept your money in the bank account. Investing always carries risk, and there is no way to eliminate all risks. If your retirement isn’t right around the corner, breathe a sigh of relief and get on with your life.

There’s nothing to worry about since time is your friend when it comes to allowing investments to mature.

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