Calculating my net income attributable 

 

What is net income attributable (NIA)?  

  • Gains or losses from an excess IRA contribution 

OR 

  • Net gains or losses related to an IRA conversion or recharacterization 

 

Calculating NIA for excess contributions 

To fix an excess contribution, withdraw the over-contributed funds from your M1 IRA account using the Transfers tab. Be sure to include the NIA in the over-contribution. 

If you’re fixing excess contributions for multiple contribution years, please calculate the NIA for each year separately. 

Calculation 

Net Income Attributable = Excess contribution amount x ((Adjusted Closing Balance – Adjusted Opening Balance)/Adjusted Opening Balance)  

 

Examples 

Removal of excess plus earnings 

Jim is 42 years old and contributed $7,000 to his IRA in 2020.  

Jim’s max contribution for 2020 is $6,000 because he is under the age of 50.  

Jim’s IRA balance before the contribution was $20,000 and is now worth $28,250.  

Jim has made no additional contributions or distributions.  

Jim’s Adjusted Closing Balance is $28,250 and his Adjusted Opening Balance is $27,000 ($20,000 + $7,000).  

 

NIA = $1,000 x (($28,250 - $27,000)/$27,000) = $46.30  

 

Jim will remove $1,046.30 ($1,000 in excess contribution + $46.30 earnings attributable to the excess contribution). 

 

Removal of excess minus earnings 

Jim is 42 years old and contributed $7,000 to his IRA in 2020.  

Jim’s max contribution for 2020 is $6,000 because he is under the age of 50.  

Jim’s IRA balance before the contribution was $20,000 and is now worth $24,250.  

Jim has made no additional contributions or distributions. Jim’s Adjusted Closing Balance is $24,250 and his Adjusted Opening Balance is $27,000 ($20,000 + $7,000).  

 

NIA = $1,000 x (($24,250 - $27,000)/$27,000) = -$101.85  

 

Jim will remove $898.15 ($1,000 in excess contribution - $101.85 loss attributable to the excess contribution). 

 

Calculating NIA for IRA recharacterizations 

Before requesting your IRA recharacterization, make sure your contribution amount (including any NIA) is in cash. Learn more about submitting a sell order. 

If you’re recharacterizing contributions from different contribution years, please calculate the NIA for each contribution year separately. 

Calculation 

Net Income = Contribution x ((Adjusted Closing Balance – Adjusted Opening Balance)/Adjusted Opening Balance)  

 

Examples 

Recharacterization of contribution plus earnings 

Jim is 42 years old and contributed $4,000 to his Roth IRA in 2020.  

Jim’s IRA balance before the contribution was $10,000.  

To treat the $4,000 as a Traditional IRA contribution, Jim must recharacterize the amount to his Traditional IRA and include any earnings on the $4,000.  

The value of Jim’s Roth IRA when he recharacterizes the $4,000 is $16,500. 

Jim has made no additional contributions or distributions.  

Jim’s Adjusted Closing Balance is $16,500 and his Adjusted Opening Balance is $14,000 ($10,000 + $4,000).  

 

NIA = $4,000 x (($16,500 - $14,000)/$14,000) = $714.29  

 

Jim will recharacterize $4,714.29 ($4,000 in contribution + $714.29 earnings attributable to the contribution). 

 

Recharacterization of contribution minus earnings 

Jim is 42 years old and contributed $4,000 to his Roth IRA in 2020.  

Jim’s IRA balance before the contribution was $10,000.  

To treat the $4,000 as a Traditional IRA contribution, Jim must recharacterize the amount to his Traditional IRA and subtract any losses on the $4,000.  

The value of Jim’s Roth IRA when he recharacterizes the $4,000 is $12,250.  

Jim has made no additional contributions or distributions.  

Jim’s Adjusted Closing Balance is $12,250 and his Adjusted Opening Balance is $14,000 ($10,000 + $4,000).  

 

NIA = $4,000 x (($12,250 - $14,000)/$14,000) = -$500 

 

Jim will remove $3,500 ($4,000 in contribution - $500 loss attributable to the contribution). 

 

M1 does not provide tax advice, you should consult your own tax advisor regarding your personal circumstances before taking any action that may have tax consequences. 

 

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