I agree completely that the FMV seems unnecessary and actually causes tax errors in some instances, like mine. The existing question "Value of [insert name]'s Traditional, SEP, and SIMPLE IRAs on December 31, 2020?" needs to be rewritten.
We contributed to 2 traditional IRAs (me and my spouse) with AFTER TAX $ and immediately converted them to our Roth IRAs via the backdoor Roth process. Therefore, there is no basis, everything is kept clean, and no taxes should be owed on this amount. I also have a traditional IRA with PRETAX money (let's say $75K for ease of example) that I fully converted to a Roth with an ending balance of $0 as of 12/31. This $75K amount is fully taxable.
Once all 1099-Rs are entered, TT asks the question: "Value of [insert name]'s Traditional, SEP, and SIMPLE IRAs on December 31, 2020?" The balance of my traditional IRAs are $0 as I full converted them as mentioned. Here is where the problem crops up - I do have a SEP account from years ago. No contributions have been made since 2013 and these three 1099-Rs that I entered have nothing to do with the SEP account. When I answer this question as it is written and provide the FMV of ALL of the listed account types, which would include my SEP, TurboTax miscalculates the taxes owed. Instead of showing the full $75K as taxable and the $12K as non-taxable as it should be, it shows a taxable amount of like $78K. That is incorrect. If I put $0 for the answer to this question and do NOT list the FMV of my SEP account as asked, the taxes are calculated properly with the $75K as taxable and the $12K as non-taxable, as it should be.
I upgraded to the Live version and shared my screen with a TT professional to confirm I am doing the right thing and she agreed "Yes, I don't know why the FMV should have any effect on the taxes owed when no contributions/distributions from that account have occurred. You are correct to put $0 as the FMV to get the taxable number correct."
**Please, TurboTax, fix this question. I am happy to show you the miscalculation it is causing so that you can explore where the problem is and fix it. Others that are not as familiar with finance/taxes and simply answering the question will be overpaying on their taxes. :(**
