It's not really a mistake or failure on your part, it happens - it's just earnings posting 12/31 that you can't know or avoid if there's enough delay between contribution and conversion and it's in an interest cash account like Vanguard or Fidelity. You can just clean it up in 2026.
When you do forms 1099-R/8606 for 2025 your contribution and conversion will both show $8000 and you'll be asked the 12/31/25 market value for your IRAs which will be $7 on line 6. That triggers the tax calc on line 9-12, your 2025 conversion will end up being 99.913% tax free (8000/8007) not 100% and you'll send up with $7993 converted tax free, $7 taxable, and the $7 is carried over as basis to 2026.
When you do the 2026 Form 8606 you will have a $7 basis carried fwd from 2025, then $8600 contribution for 2026, so total $8607 basis in the IRA, and your 1099-R will show $8607 converted. Assuming you end up with zero balance on 12/31/26 it will be entirely tax free in 2026.
It doesn't matter when you move the $7, your 1099R for 2026 will be for the total, but if it's easy to move at your custodian then you can just clean it up right away.
This answer has been verified for accuracy by an Intuit expert employee
