Do I need to report the Fair Market Value of my IRA on my 2016 income tax return?

[jcthurmond]

Where do I report the Fair Market Value for my IRA account for tax year 1016?

[MargaretL · Accepted solution]

Fair Market Value on your IRA accounts is not reported on the tax return, keep that information (as well as form 5498 if you have one) for your records.

[fanfare]

That number comes into play only if you have a basis from non-deductible contributions in any one of your IRAs. If needed, TurboTAX will ask for it.

[Taxfoul]

If I have no contributions or withdrawals, (I did convert an amount from traditional ira to Roth ira), MUST i still give the 12/31/20 value of my IRA?

[mo4150]

I have the same question. I converted a sum from traditional to Roth. TurboTax software asking me to input the FMV of my IRA from a 5498 form, which I don't have. Can I skip this step?

[AnnetteB6]

You should not skip that step if you want your taxable income to be accurate.

Converting all or a portion of your Traditional IRA to a Roth IRA is essentially a distribution from your Traditional IRA.  

If you ever made any non-deductible contributions to that Traditional IRA or any other Traditional IRAs, then the Fair Market Value of all of your Traditional IRA accounts is needed in order to calculate what portion of the distribution is taxable.  Skipping that step and not entering the FMV of your Traditional IRAs could result in an overstatement of your taxable income.  

@mo4150

@Taxfoul

[mo4150]

Thank you, your response was helpful. I should have added in my initial question that when I moved funds from traditional to Roth, I simultaneously had federal income taxes withheld (and validated on the 1099-R I received). What threw me was the step in TurboTax software telling me to enter the FMV of my IRA (which didn't seem necessary).

[fvargas]

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. :(**

[AnnetteB6]

Even though it is understandable that the account value of your SEP seems unrelated to the account value of your Traditional IRAs, the question in TurboTax is absolutely correct and does not need to be changed.  

The wording of that question is taken directly from Form 8606 line 6.  This line says 'Enter the value of all your Traditional, SEP, and SIMPLE IRAs as of December 31, 2020 plus any outstanding rollovers.  Subtract any repayments of qualified disaster distributions.'

For your reference, here is a link to the 2020 Instructions for Form 8606.  The detail for line 6 is shown in the middle column of page 7 of the PDF document.

2020 Instructions for Form 8606

You should revisit your tax return and make the correction by including the year-end value of your SEP account.

[mo4150]

AnnetteB6,

My initial question concerned providing the FMV of my IRA to the IRS. However, I now question why it is I need to complete Form 8606 Part I at all.

Form 8606 comes in three parts, and I’ll address each part on its own merits.

Part I instructions state "Complete this part only if one or more of the following apply." The Form lists three bullet points and at least one must apply to my situation for me to be required to complete Part I. I'll address each bullet point on its own merit.

Bullet #1: I have never made nondeductible contributions to my IRA - not in 2020, not ever. Therefore, this bullet point does not apply; Bullet #2: This bullet point comes in two parts and is separated by the word "and" which the IRS put in bold text for emphasis. In other words, for this bullet point to apply two conditions must be met: (1) taking a distribution from an IRA for, among other things, a "conversion." This condition does not apply to me; (2) "and you made nondeductible contributions to a traditional IRA in 2020 or an earlier year" (emphasis on the original by the IRS). This condition does not apply to me because it has never happened, not in 2020 or "an earlier year. Therefore, this bullet point does not apply; Bullet #3: This bullet point also comes in two parts and is separated by the word "and" which the IRS put in bold text for emphasis. In other words, for this bullet point to apply two conditions must be met: (1) converting part, but not all, of an IRA to a Roth IRA. This condition applies to me; (2) "and you made nondeductible contributions to a traditional IRA in 2020 or an earlier year" (emphasis on the original by the IRS). This condition does not apply to me because it has never happened, not in 2020 or "an earlier year. Therefore, this bullet point does not apply.

Thus, Part I, and by default line 6, does not apply to my situation and, therefore, my understanding is I am not required to provide the FMV of my IRA.

Part II, which may apply to me, has three lines: Line 16 comes in two parts: (1) If I completed Part I then I enter line 8 amount on line 16. This condition does not apply because I do not believe Part I applies to my situation; (2) Enter the amount I converted from traditional to Roth in 2020. This condition applies to me, but only the amount I converted. For illustration I’ll use a fictitious amount of $100.00, and would enter that amount on line 16. Line 17 also comes in two parts: (1) If I completed Part I then I enter the amount on line 11. This condition does not apply because I do not believe Part 1 applies to my situation; (2) “enter your basis in the amount on line 16.” The IRS defines basis as “the total of all your nondeductible contributions and nontaxable amounts included in rollovers made to these IRAs minus the total of all your nontaxable distributions, adjusted if necessary.” In my case, there were no non-deductible contributions, no nontaxable amounts, and no nontaxable distributions. Thus, it’s my understanding the basis would be $0.00, and it is that amount I would enter on line 17. Line 18 requires that I subtract line 17 from line 16 and enter any amount greater than $0.00 on 1040 line 4b. In this illustration, I would enter $100.00 on my 1040 line 4b.

Part III is specific to “Distributions From Roth IRAs.” This does not apply to me and, by default, I am not required to complete.

Given all the above, it is my understanding that while I am required to complete Part II of Form 8606, Parts I and III do not apply to me and, by default, there is no requirement to provide the FMV of my IRA to the IRS.

Admittedly, though, I am not a tax expert like you. Therefore, if you still believe (1) I am required to complete Form 8606 Part I and/or Part III, and (2) provide the FMV of my IRA, please reply and inform me where I erred in understanding.

Thank you for your patience and advice. 

[AnnetteB6]

Looking back at the answer previously given with regard to entering the fair market value of all Traditional IRAs, you will see that it was qualified with 'if you have ever made any non-deductible contributions' . . . then the fair market value is needed to calculate the taxable portion of the distribution.  

Since you stated that you have never made any non-deductible contributions, you will not need to enter the fair market value of your Traditional IRAs in order for the taxable portion to be calculated.  

As you go through the screens in TurboTax there should be a question asking if any non-deductible contributions were ever made.  If you answer 'no', then the question about the fair market value should not be asked.  

Review the follow-up questions that appear after you enter the Form 1099-R and be sure your answers match your situation.  

@mo4150

[mo4150]

AnnetteB6,

Thank you so very much for the response which was very helpful. You are correct that you mentioned the "non-deductible" scenario in your previous reply, and I completely missed that instruction. I stand corrected. Thank you.

Unfortunately, though, I still believe TurboTax software is asking me to declare the value of my IRA, and for my situation that question doesn't need to be asked. I've provided step-by-step screen-shots with this reply.

As you can see on image #7, I selected "No" to the question asking if I made or tracked non-deductible contributions, yet the next slide (#8) instructed me to input the value of IRA as of 12/31/2020.

Interestingly, I did not input the value of my IRA and was able to continue processing my 2020 taxes to the point of filing (which I haven't completed yet until this matter is settled). Moreover, I wanted to see how slide #8 affected my return if I did and did not declare the value of my IRA. What I found was regardless whether I input the value of my IRA, or did not provide that information, my refund amount did not change.

It appears, then, that for my situation I am not required to provide the value of my IRA. Unless you instruct me otherwise I will proceed with filing as all other steps of processing my 2020 taxes appear to be in order.

Again, thank you for your patience with me and advice.

mo4150

[AnnetteB6]

I created a similar test case and could see that the program does indeed ask you about the value of your Traditional IRA accounts even if you indicate that no non-deductible contributions were made.  

Through that test case I could see the Form 8606 that is generated and even when a value is entered for the IRA accounts as of 12/31/2020, the Form 8606 is not completed with that value.  Part I of Form 8606 is blank as would be expected.  

There should be no issues with your return whether or not you enter the total value of your Traditional IRA since non-deductible contributions are not a factor for your taxes.

@mo4150

[Parker_3]

I am using TT Home and Business, it does not ask the question about IRA contributions after disaster question in the section of 1099-R's

Honestly, just kind of realized I used to file 8606 regularly and somewhere along the way TurboTax dropped it from my returns.  Do I need to go back and fix old returns and why doesn't TT ask about this in home and business version?

Thanks,

Parker

[MarilynG1]

@Parker_3 Click this link for more info on Form 8606, including how to trigger the form. 

If you don't report any 'Non-Deductible Contributions' the form is not generated in TurboTax. 

If you don't qualify to make a non-deductible contribution, TurboTax won't ask you about them, although the form is used in the Home & Business product.

This link has detailed info on Non-Deductible Contributions.

Review your contribution info on your prior year returns; you may not need to Amend Your Returns.