What is net income attributable (NIA)?
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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
Adjusted opening balance is an IRA’s opening balance at the beginning of the period the excess was contributed, including any contributions, transfers, rollovers, or recharacterizations in the IRA since the excess contribution was made.
Adjusted closing balance is an IRA’s closing balance prior to the removal of the excess, plus any distributions (including rollovers, transfers, and recharacterizations) taken from the IRA during the period the excess was in the account.
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= $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= -$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
Adjusted opening balance is an IRA’s opening balance at the beginning of the period the excess was contributed, including any contributions, transfers, rollovers, or recharacterizations in the IRA since the excess contribution was made.
Adjusted closing balance is an IRA’s closing balance prior to the removal of the excess, plus any distributions (including rollovers, transfers, and recharacterizations) taken from the IRA during the period the excess was in the account.
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 = $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 = -$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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