Distribution of Roth IRA when I partially transferred brokerages

[sma46424]

Situation: I contributed to a Roth IRA in tax year 2025 for the full amount, but became ineligible due to upper income threshold during the year. I now need to do a excess contribution distribution, but unsure on the gain I am supposed to put on my distribution form. I learned via some AI chats that it should be the NIA, but unsure if my scenario poses a challenge.

The issue

1. Brokerage A has a Roth IRA Balance of $15k end of year., but was $70k date before the contribution. This was the original account where contribution was made in 1Q, but then partially transferred to brokerage B at the end of 1Q. I could only do a partial transfer because brokerage B does not accept fractional shares.

2. Brokerage B has a Roth IRA Balance of $80k end of year

Do I calculate the NIA based on brokerage A+B? or just brokerage B?

[dmertz · Accepted solution]

CFR 1.408-11 describes the calculation.  Although you did a transfer rather than a distribution, the Adjusted Closing Balance for Roth IRA A must include the amount transferred out of Roth IRA A:

https://www.law.cornell.edu/cfr/text/26/1.408-11

You didn't say the value of the shares when the shares were transferred out, but I imagine that it was less than the $80,000 now in Roth IRA B.  If the value transferred out was was, say, $60,000, $60,000 is the amount that you would add to the $15,000 in Roth IRA A.  Still, if Roth IRA B contains only the shares moved from Roth IRA A, I can see an argument being made that it would be reasonable to add the current value of Roth IRA B instead, resulting in an ACB of $95,000.

And to be clear, the ACB is not just the amount on Roth IRA B.  The amount in Roth IRA A must be included in the ACB.