The regulation in plain language
26 CFR §1.408-11(a)(1) defines NIA as the earnings (or losses) attributable to a specific contribution during the time it sat in the account. The computation period runs from immediately before the contribution to immediately before the corrective distribution.
What "computation period" means — verbatim
From 26 CFR §1.408-11(b):
“The term computation period is the period beginning immediately prior to the time that the contribution being returned was made to the IRA and ending immediately prior to the removal of the contribution.”— 26 CFR §1.408-11(b) (read full text)
For multiple contributions returned together, the period begins immediately before the first of the contributions being returned.
The four inputs
- Contribution amount — the dollar value of the excess that needs to come out.
- Adjusted Opening Balance (AOB) — account FMV immediately before the contribution, plus the contribution being returned itself, plus any other contributions or transfers in during the computation period (per Treas. Reg. §1.408-11(c)). The single most-common error is omitting the contribution being returned from the AOB. The IRS example explicitly adds it: AOB = $4,800 + $1,600 = $6,400.
- Adjusted Closing Balance (ACB) — account FMV immediately before the corrective distribution, plus any distributions or transfers out during the period.
- Computation period— implied by the contribution and distribution dates. Daily-balance method is permitted but rarely used; the regulation's default is the period method.
The §1.408-11(c) AOB definition — verbatim
The contribution being returned IS added into AOB. From the regulation:
“Adjusted opening balance. The fair market value of the IRA at the beginning of the computation period plus the amount of any contributions or transfers (including the contribution that is distributed pursuant to section 408(d)(4) and any other contributions or transfers) made to the IRA during the computation period.”— 26 CFR §1.408-11(c) (read full text)
Plain-English NIA explainers frequently omit this and define AOB as "just the FMV before the contribution." That undercount of AOB inflates the (ACB − AOB) numerator, which inflates the NIA. The Notice 2000-39 Example 1 numbers ($400 / AOB $6,400 / ACB $7,600 → NIA $75) only reproduce when you include the $1,600 contribution itself in AOB.
The §1.408-11(c) ACB definition — verbatim
ACB picks up any distributions or transfers OUT during the computation period. From the regulation:
“Adjusted closing balance. The fair market value of the IRA at the end of the computation period plus the amount of any distributions or transfers made from the IRA during the computation period.”— 26 CFR §1.408-11(c) (read full text)
Worked example (Notice 2000-39 Example 1) — verbatim
“On May 1, 2000, when her IRA is worth $4,800, Taxpayer A makes a $1,600 regular contribution to her IRA. Taxpayer A requests that $400 of the May 1, 2000, contribution be returned to her pursuant to § 408(d)(4). Pursuant to this request, on February 1, 2001, when the IRA is worth $7,600, the IRA trustee distributes to Taxpayer A the $400 plus attributable net income. During this time, no other contributions have been made to the IRA and no distributions have been made. The adjusted opening balance is $6,400 [$4,800 + $1,600] and the adjusted closing balance is $7,600. Thus, the net income attributable to the $400 May 1, 2000, contribution is $75 [$400 × ($7,600 − $6,400) ÷ $6,400]. Therefore, the total to be distributed on February 1, 2001, pursuant to § 408(d)(4) is $475.”— IRS Notice 2000-39, §III, Example 1 (PDF)
AOB = $4,800 + $1,600 = $6,400.
ACB = $7,600.
NIA = $400 × ($7,600 − $6,400) ÷ $6,400 = $75.00.
Total to distribute = $400 + $75 = $475.00.
What if the account is in a loss?
NIA can be negative. A loss reduces the amount that must be returned — you remove principal minus the loss attributable to the excess. The regulation explicitly contemplates this:
“Net income calculated under the formula in this paragraph (a) may be a negative amount.”— 26 CFR §1.408-11(a)(1)
Notice 2000-39 Example 3 produces NIA = −$10,000 on a $160,000 conversion that lost $15,000 over the period. The custodian's form will accept a negative NIA.
TCJA: contribution recharacterization survives — but conversions don't
The Tax Cuts and Jobs Act eliminated conversion recharacterization (you can no longer un-convert a Roth conversion). It did not eliminate contribution recharacterization. The current statute, as amended:
“Taxpayer may make adjustments before due date — In general. Except as provided in subparagraph (B), if, on or before the due date for any taxable year, a taxpayer transfers in a trustee-to-trustee transfer any contribution to an individual retirement plan made during such taxable year from such plan to any other individual retirement plan, then, for purposes of this chapter, such contribution shall be treated as having been made to the transferee plan (and not the transferor plan). Special rules — … (iii) Conversions. Subparagraph (A) shall not apply in the case of a qualified rollover contribution to which subsection (d)(3) applies (including by reason of subparagraph (C) thereof).”— 26 U.S.C. §408A(d)(6) (read full statute)
You can still treat a Roth contribution as if made to a Traditional IRA (or vice versa) by trustee-to-trustee transfer before the return due date — and the same NIA formula applies to that transfer. Misstating this is the highest-impact accuracy risk in this area.
When the simple formula doesn't apply — call a CPA
The single-input calculator handles the textbook scenario: one excess contribution, no other in-period transfers. The §1.408-11(c) AOB and ACB definitions explicitly account for additional contributions or distributions during the computation period — but producing the right number when those exist is mechanical-but-error-prone. Specifically, consult a CPA or Enrolled Agent if any of the following apply:
- You made multiple contributionsduring the computation period (Notice 2000-39 Example 2 covers this — each returned contribution gets its own NIA calculation; AOB is computed for each one separately, with later in-period contributions added to the earlier-contribution's AOB).
- You took an in-period distribution from the IRA during the computation period (those amounts go into ACB per §1.408-11(c)).
- You executed an in-period transfer in or out of the IRA, including a rollover into or out of the same custodian.
- The computation period spans a recharacterization (the recharacterized amount is itself a transfer that affects both AOB and ACB).
Multiple in-period contributions
Notice 2000-39 Example 2 covers a multi-payroll scenario where the excess accumulates over several monthly contributions. AOB is computed for each returned contribution (with the FMV immediately before that contribution + all subsequent in-period contributions); NIA is computed once per returned contribution and summed. The single-input calculator handles each NIA separately — run it once per returned contribution.
Zero-AOB safe harbor
If AOB is zero (the IRA was funded only with the contribution being returned and held no prior balance), the formula is undefined. Notice 2000-39 §III provides a safe harbor: distributing the entire account balance satisfies the corrective-distribution requirement. The calculator returns "—" in that case rather than dividing by zero.
Rounding
IRS published examples round to the whole dollar in the printed text (e.g., $54, $71, $187). The calculator computes and displays to two decimals ($53.97, $71.19, $186.89). Both are correct — the unrounded computations match. The cent-precision output is what custodians' forms typically request.
See also: IRC §408(d)(4) for the statutory hook, and IRS Notice 2000-39 for the original regulatory guidance the formula was promulgated under.
Also relevant
- What counts as an excess contribution — the trigger conditions across IRA, Roth, and HSA.
- When to file the corrective return — the Apr 15 / Oct 15 windows and the §301.9100-2(b) extension.
- Run the NIA calculator — feed the same inputs into the engine and watch every line of the formula trace.
- Removal decision tree — pick the right corrective path for your fact-pattern.
- Sources — every statute, regulation, and IRS notice cited above, with verification dates.
Informational, not tax advice. Consult a CPA or Enrolled Agent before acting on a corrective distribution.