Net Income Attributable (NIA)

What Is Net Income Attributable (NIA)?

Net income attributable (NIA) is a tax term that is used to describe the prorated gain or loss assigned to any excess individual retirement account (IRA) contributions that are withdrawn by a taxpayer prior to filing a tax return.

Key Takeaways

  • Net income attributable (NIA) is the amount of gain or loss applied to the excess contribution that is being withdrawn.
  • When a taxpayer withdraws excess contributions, they must also withdraw any gain generated by that contribution.
  • If the IRA incurs a loss after an excess contribution, the NIA is subtracted from the required withdrawal amount.

The formula for NIA is:

Excess Contribution x [(Adjusted Closing Balance - Adjusted Opening Balance) ÷ Adjusted Opening Balance] = Net Income Attributable

The components of the calculation are defined as follows:

Adjusted opening balance

The adjusted opening balance is the fair market value (FMV) of the IRA at the beginning of the computation period plus any contributions made to the account, including the excess contribution. If the FMV is not computed and readily available on a daily basis, the beginning FMV is calculated on the nearest date that coincides with or precedes the computation period.

Adjusted closing balance

The adjusted closing balance is the FMV of the IRA at the end of the computation period, including the excess contribution.

Computation period

The computation period begins immediately prior to when the taxpayer made the excess contribution and it ends immediately after the removal of the excess contribution. If more than one contribution makes up the excess contribution for the period, the computation period begins immediately prior to the first contribution being withdrawn.

Understanding NIA

When a taxpayer makes an excess IRA contribution, both the allowable contribution and excess contribution generate a gain or sustain a loss. The NIA formula was added to the Internal Revenue Code (IRC) in order to assist taxpayers in assigning a portion of the total gain or loss to the excess contribution. The NIA is added to the excess contribution when the amount is returned to the IRA owner.

If the account gained value during the time the excess contribution was in the account, the NIA calculation is positive. The NIA plus the excess contribution must be withdrawn from the account. If the account lost value during the time the excess contribution was in the account, the NIA calculation is negative. The NIA is subtracted from the excess contribution prior to withdrawing funds from the account.

Examples of NIA

The following examples show the NIA to an excess contribution:

Gain during the computation period

On April 15, Sarah contributes $6,000 to her IRA. Her IRA had a balance of $40,000 prior to this contribution. No other contributions were made and no distributions were taken during the computation period.

At the end of the year, she realizes her income falls in the phase-out range for her IRA contributions and she was only eligible to contribute $4,000. She requests a distribution of the $2,000 excess contribution plus any net income attributable to it. At this time, the value of the account is $50,000.

The net income attributable is calculated as follows:

$2,000 X [($50,000 - $46,000) ÷ $46,000] = $173.91

The total amount Sarah will receive out of the account is:

$2,000 + $173.91 = $2,173.91

Loss during the computation period

Alternatively, let’s look at the exact same scenario but imagine that the account value is $45,000 at the end of the year. In this case, the net income attributable is:

$2,000 X [($45,000 - $46,000) ÷ $46,000] = -$43.48

The total amount Sarah will receive out of the account is:

$2,000 - $43.48 = $1,956.52

What Is Net Income Attributable (NIA) To Excess Contributions?

It is the prorated gain or loss in the IRA that is the result of the excess contribution being held in the account for a period of time.

How Do I Calculate the Adjusted Opening Balance if I Made Multiple Contributions During the Year?

The computation period is deemed to have begun just prior to the first contribution that is being withdrawn. The adjusted opening balance should use the fair market value (FMV) coinciding with or just prior to that contribution. For example, if you contributed $300 monthly all year and had an excess contribution of $600, you would use the FMV just prior to your 11th contribution.

How Do I Calculate NIA if I Have Multiple IRAs?

If you have multiple IRAs, you calculate NIA only on the account that contains the excess contribution. Additionally, that account must be the one to return the excess contribution.

Article Sources

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  1. Code of Federal Regulations. "§ 1.408-11 Net Income Calculation for Returned or Recharacterized IRA Contributions."

  2. Internal Revenue Service. "Earnings Calculation for Returned or Recharacterized IRA Contributions," Page 3.

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