Dear TurboTax, I over-contributed $7000 to ROTH IRA in 2024 because my income went up. I want to recharacterize that $7000 and I filed extension to get this done now. Brokerage A does not provide earn/loss calculation so I would really appreciate if you can point out my mistakes:
Here's my situation:
Timeline
- January 2024: I contributed $7,000 to my Brokerage B's Roth IRA
- June 2024: I opened brokerage A Roth IRA and transferred $22,048 from Brokerage B's ROTH IRA (which included my $7,000 contribution)
- July 2024: The closing balance was $21,928 in brokerage A Roth IRA
- December 2024: The closing balance was $22,724.47 in brokerage A Roth IRA
- January 2025: I contributed an additional $7,000 for tax year 2025 (not 2024), bringing the balance to $30,673 inbrokerage A Roth IRA
- March 2025: The closing balance was $28,059 in brokerage A Roth IRA
- April 22, 2025 (today): The current balance is $26,604 in brokerage A Roth IRA
All funds in my brokerage A Roth IRA have been invested in stocks and ETFs throughout this period.
I do not wish to recharacterize that ROTH IRA contribution of $7000 that I made in Jan 2025.
Questions: If I were to recharacterize the original $7,000 contribution from my Brokerage A's Roth IRA, is the following the right way to calculate my earnings or loss and Net Income Attributable (NIA)?
Step 1: Calculate the proportion of the 2024 contribution relative to the total transfer
Proportion of 2024 contribution = 2024 Contribution / Total Transferred = $7,000 / $22,048 = 0.3175 or 31.75%
This means that 31.75% of the total transferred amount was your 2024 contribution.
Step 2: Calculate the value of the 2024 contribution as of December 2024
Since all funds are commingled in investments, we use the proportional method to determine how much of the December 2024 balance represents the original $7,000 contribution.
Value of 2024 contribution as of Dec 2024 = Closing Dec 2024 × Proportion = $22,724.47 × 0.3175 = $7,214.77
Step 3: Calculate the earnings/loss on the 2024 contribution as of December 2024
Earnings/Loss as of Dec 2024 = Dec 2024 Value - Original Contribution = $7,214.77 - $7,000 = $214.77
This represents a gain of $214.77 by December 2024.
Step 4: Calculate performance ratio after January 2025 contribution
We need to determine how the account performed after the January 2025 contribution to apply this performance to the 2024 contribution's December value.
Performance Ratio = Current Value / (Dec 2024 Value + Jan 2025 Contribution) = $26,098 / ($22,724.47 + $7,000) = $26,098 / $29,724.47 = 0.8780
This means the account value declined to about 87.80% of what it would have been if there had been no change in value after the new contribution.
Step 5: Apply this performance ratio to the December 2024 value of the 2024 contribution
Current Value of 2024 Contribution = Dec 2024 Value of Contribution × Performance Ratio = $7,214.77 × 0.8780 = $6,334.55
Step 6: Calculate the final earnings/loss for the 2024 contribution
Total Earnings/Loss = Current Value of 2024 Contribution - Original Contribution = $6,334.55 - $7,000 = -$665.45
Step 7: Calculate percentage return
Percentage Return = (Total Earnings/Loss / Original Contribution) × 100% = (-$665.45 / $7,000) × 100% = -9.51%
If these are correct, then my 2024 contribution of $7,000 has experienced a loss of $665.45, which represents a -9.51% return. When recharacterizing the 2024 contribution, I should report this number indicating that the current value of that contribution is $6,334.55? Thank you so very much for your help!
I do intent to backdoor this amount back to Roth IRA too.
