Without going into specifics with your particular numbers, the fair market value of all Traditional IRA accounts does become a factor in determining the taxable amount of a Traditional IRA distribution in the case where there were deductible and non-deductible contributions made to the Traditional IRA.
If the account only contained contributions that had been deducted (money that has not been taxed), then the entire distribution is taxable. But, when there is a combination of deductible and non-deductible contributions in the account, then each distribution is partially taxable and partially non-taxable. The amount of each is proportional to the total fair market value of the account.
When you look at your tax return and the worksheets used, Form 8606 will show the calculation to determine the taxable amount of the Traditional IRA distribution based on the basis in the account and the fair market value.
Note, the rules governing Traditional IRA distributions and Roth IRA distributions are different because Roth IRA contributions are made with after-tax money. They are never deducted. Therefore, when you take a distribution from a Roth IRA, the amount is first considered to be taken from the basis in the account (the amount you have contributed). If the distribution is less than the basis, then it is not taxable.
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