How to Calculate Earnings on Excess Roth IRA Contributions

To calculate the earnings on an excess Roth IRA contribution, use the IRS Net Income Attributable (NIA) formula: multiply the excess contribution by the account’s proportional gain or loss over the period it held the excess. The formula is set out in federal regulations and every IRA custodian applies it the same way.¹ The result tells you exactly how much to withdraw alongside the excess so you return what the IRS considers attributable to the mistake, no more and no less.

The NIA Formula

NIA = Excess Contribution × (Adjusted Closing Balance − Adjusted Opening Balance) ÷ Adjusted Opening Balance

The formula measures how much the entire account grew or shrank while the excess was held, then attributes a proportional slice of that change to the excess dollars. It does not track the performance of any individual stock or fund. It looks at the account as a whole.¹

The Three Inputs You Need

Adjusted Opening Balance

The Adjusted Opening Balance (AOB) is the fair market value of the Roth IRA at the moment immediately before the excess contribution was deposited, plus all contributions and transfers into the account during the computation period, including the excess itself.¹ If your account was worth $20,000 right before you deposited a $2,000 excess, and you also made a separate $5,000 contribution during the same period, your AOB would be $27,000.

Adjusted Closing Balance

The Adjusted Closing Balance (ACB) is the fair market value of the Roth IRA immediately before the corrective distribution is processed, plus any distributions or transfers out during the computation period.¹ Adding back distributions keeps money that left the account during the period from distorting the earnings figure.

The Computation Period

The period runs from immediately before the excess contribution was deposited to immediately before the corrective distribution. If you made more than one regular contribution during the year and need to return one, the period begins immediately before the first contribution being returned. The last regular contribution made for the tax year is treated as the one being returned, up to the amount you identify as excess.² Your custodian can usually pull these dates and balances from your account history.

A Worked Example

Suppose you contributed $2,000 more than your allowed Roth IRA limit. At the moment before that excess deposit, your account was worth $18,000. With no other contributions during the computation period, your AOB is $20,000 ($18,000 + $2,000). By the time you request the corrective withdrawal, the account has grown to $21,500 with no distributions during the period, so your ACB is $21,500.

Run the numbers:

Subtract AOB from ACB: $21,500 − $20,000 = $1,500
Divide by AOB: $1,500 ÷ $20,000 = 0.075
Multiply by the excess: $2,000 × 0.075 = $150

The NIA is $150. You withdraw $2,150 total: the original $2,000 excess plus $150 in attributable earnings.¹

When the Account Lost Value

If your account fell in value while holding the excess, the NIA comes out negative. You then subtract the loss from the excess and withdraw less than the original amount. If your excess was $2,000 and the NIA is −$100, you withdraw only $1,900.³ The $100 loss stays in the account. You owe no tax on earnings you never received, and you do not have to make up the loss out of pocket.

What to Do With the Number

Once you have the NIA, contact the custodian holding your Roth IRA and request a return of excess contribution. Most custodians provide a specific form, often labeled “Removal of Excess Contribution.” You will typically need to give the dollar amount of the excess, the date it was deposited, and the computed NIA. Some custodians will run the calculation for you once you supply the dates. Confirm that the distribution is coded as a return of excess under section 408(d)(4), because incorrect coding can create tax complications.

To avoid the 6% excise tax, the excess and its NIA must come out by the due date of your federal income tax return, including extensions. For a 2025 excess, that primary deadline is April 15, 2026, or October 15, 2026 with an extension.⁴ If you filed your return on time but forgot to remove the excess, you get a six-month grace window running from the original filing deadline (not counting extensions). Using that window requires filing an amended return with “Filed pursuant to section 301.9100-2” written at the top, reporting the related earnings on the amended return, and including an explanation.³

Recharacterizing Instead of Withdrawing

Rather than pulling the money out, you can move the excess and its NIA into a Traditional IRA through a recharacterization. The transfer happens trustee-to-trustee, and the IRS treats the contribution as though it had been made to the Traditional IRA from the start. If the NIA is negative, the amount transferred is reduced by the loss. The recharacterization deadline is the same as the withdrawal deadline: the due date of your return, including extensions.³

Reporting the Earnings on Your Return

Your custodian will issue Form 1099-R for the year the distribution occurs. The distribution code in Box 7 tells the IRS what happened:⁵

Code 8 means the excess contribution and earnings are taxable in the same year the form is issued.
Code P means the earnings are taxable in the prior year. If you see Code P on a 2026 Form 1099-R, the earnings belong on your 2025 return.

The original excess itself is not taxed when withdrawn, because it went in with after-tax dollars. The NIA portion is included in your income for the year the contribution was made, not the year you withdrew it, and it is taxed at ordinary income rates.⁴ If you correct the excess by the filing deadline (including extensions), the 10% early withdrawal penalty does not apply to the earnings, even if you are under 59½.⁵ A negative NIA means there are no earnings to report and no additional tax.

If You Miss the Deadlines

An excess left in the account past both windows triggers a 6% excise tax on the excess amount for every year it stays there, capped at 6% of the total value of all your Roth IRAs as of December 31 of that year.⁶ You report the penalty on Part IV of Form 5329, which carries any prior-year uncorrected excess forward.⁷ A $3,000 uncorrected excess produces a $180 penalty each year it persists.

You can stop the recurring penalty without a corrective withdrawal by contributing less than your limit in a future year. The unused room absorbs the leftover excess and shuts off the penalty going forward, though you still owe 6% for each year the excess was present before it was absorbed.⁷ Keep records of the excess, any partial corrections, and each year’s Form 5329 until the issue is fully resolved.

1
Code of Federal Regulations. 26 CFR 1.408-11 Net Income Calculation for Returned or Recharacterized IRA Contributions
2
eCFR. Net Income Calculation for Returned or Recharacterized IRA Contributions
3
Internal Revenue Service. Publication 590-A (2025), Contributions to Individual Retirement Arrangements (IRAs)
4
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
5
Internal Revenue Service. Instructions for Forms 1099-R and 5498 (2025)
6
Office of the Law Revision Counsel. 26 USC 4973 – Tax on Excess Contributions to Certain Tax-Favored Accounts and Annuities
7
Internal Revenue Service. Instructions for Form 5329 (2025)