Why Is My IRA Not Growing? 6 Common Reasons

An Individual Retirement Account (IRA) offers a tax-advantaged way for individuals to save for retirement. These accounts, set up through financial institutions like banks or brokerage firms, allow investments to potentially grow on a tax-deferred or tax-free basis, depending on the IRA type. Common types include Traditional IRAs, Roth IRAs, SEP IRAs for self-employed individuals, and SIMPLE IRAs for small businesses. While IRAs are designed to foster long-term growth, account holders sometimes observe their balances not increasing as anticipated.

Broader Market Influences

External economic forces significantly shape the performance of investments held within an IRA. The economy experiences regular fluctuations, including phases of expansion, peak, contraction, and trough. During periods of economic contraction or recession, corporate profits often decline, leading to negative or stagnant returns in the stock market.

Market downturns, such as bear markets or corrections, can also cause investment values to decrease. For example, if the S&P 500 index experiences a significant drop, an IRA invested in broad market index funds will reflect this decline. Interest rate changes, often influenced by central bank policies, affect both bond and stock markets.

When interest rates rise, newly issued bonds offer higher yields, making existing bonds with lower rates less attractive and causing their prices to fall. Higher interest rates can also increase borrowing costs for companies, potentially reducing their profits and leading to a decrease in stock prices. Global events, including geopolitical tensions, trade disputes, and international economic shifts, can introduce uncertainty and volatility into domestic markets. For instance, a major global conflict or a significant policy change in a large economy can trigger sharp swings in stock prices and currency exchange rates.

Investment Choices Within Your Account

The specific investments chosen inside an IRA influence its growth. Asset allocation, the mix of different asset classes like stocks, bonds, and cash, determines a portfolio’s risk and return characteristics. An overly conservative allocation, such as holding too much cash or low-yield bonds, may lead to slow growth, potentially failing to keep pace with inflation. Conversely, an overly aggressive allocation might expose the account to excessive volatility and larger losses during market downturns.

The performance of individual investment vehicles, such as mutual funds, exchange-traded funds (ETFs), or individual stocks, can also contribute to slow growth if they underperform their benchmarks or peers. Many actively managed mutual funds, for example, historically fail to outperform market indexes over long periods, even before considering their fees. An actively managed equity mutual fund might have an average management fee around 1.10%, which can eat into returns.

Diversification, spreading investments across various asset classes and sectors, helps mitigate risk. Concentrating investments in one area can lead to poor growth if that specific sector experiences a downturn. A diversified portfolio, combining assets that react differently to market conditions, can help balance returns and reduce the impact of underperforming segments. Aligning investment choices with personal growth goals and risk tolerance is important for IRA performance.

The Role of Fees and Expenses

Various fees and expenses can silently erode returns within an IRA over time, diminishing its overall growth. Advisory fees are paid to financial professionals or robo-advisors for managing the account. For human advisors, these fees range from 0.80% to 1.20% annually, while robo-advisors may charge lower fees, often between 0.20% and 0.45%.

Expense ratios are ongoing fees associated with mutual funds, ETFs, and other managed investments, representing the annual cost of operating the fund. For example, the average ETF expense ratio in 2024 was 0.48% for index ETFs and 0.69% for active ETFs, while index mutual funds averaged 0.60% and actively managed mutual funds averaged 0.89%. These percentages are deducted directly from the fund’s assets, reducing the investor’s net return.

Trading fees or commissions are incurred when buying or selling investments within the IRA. While many discount brokers have eliminated these for online trades of stocks and ETFs, some transactions or specific asset types may still carry fees ranging from a few dollars to over $100 per trade. Some IRA custodians may charge account maintenance or custodial fees, which can range from $25 to $50 annually, though many providers waive these, especially for larger accounts. Even small percentages can significantly compound over decades, reducing the long-term value of an IRA.

Contributions and Withdrawals

The flow of money into and out of an IRA impacts its size and growth. Insufficient contributions, such as only depositing small amounts or failing to contribute regularly, can significantly slow the compounding effect. For 2024 and 2025, the annual IRA contribution limit is $7,000 for those under age 50, and $8,000 for individuals age 50 or older. Not maximizing these contributions can limit the potential for substantial growth.

Regular withdrawals, especially during retirement, will naturally reduce the account balance and offset any investment gains. For Traditional IRAs, required minimum distributions (RMDs) generally begin at age 73. These mandatory withdrawals, calculated by dividing the account balance by an IRS-determined life expectancy factor, reduce the amount of money remaining in the account to continue growing tax-deferred. Failure to take RMDs can result in a 25% excise tax on the undistributed amount, which can be reduced to 10% if corrected timely.

The lack of reinvestment of dividends and capital gains can hinder compounding growth. While dividends and capital gains within an IRA are not taxed until withdrawal (for Traditional IRAs) or are tax-free upon qualified withdrawal (for Roth IRAs), allowing them to be paid out as cash rather than reinvested means those earnings do not contribute to further account growth. Most IRA providers automatically reinvest these distributions, but account holders can choose to receive them as cash.

Inflation’s Impact on Real Returns

Inflation, the general increase in prices for goods and services over time, directly affects the purchasing power of money. Even if an IRA shows a nominal gain—meaning the dollar amount of the account balance has increased—its real return, or its actual buying power, can be eroded by inflation. If the nominal rate of return on an investment is lower than the inflation rate, the real return becomes negative, meaning the money can buy less than it could before, despite a higher dollar value.

This erosion of purchasing power is noticeable with investments that offer low nominal returns, such as cash or certain types of bonds. For example, if a bond yields a 2% nominal return but inflation is 3%, the real return is effectively -1%. While stocks are sometimes considered a hedge against inflation over the long term, their prices can fluctuate significantly as companies absorb inflation shocks. Understanding the distinction between nominal returns (the stated percentage gain) and real returns (the gain after accounting for inflation) is essential for assessing the true growth of an IRA.