Failed to remove earned interest by Dec 31 with a Backdoor Roth conversion

[dpreas2017]

Happy 2026!  I just realized that I must remove earned interest ($7) from a non-deductible contribution ($8000) to a traditional IRA by Dec 31; part of my backdoor ROTH IRA conversion in 2025; $7 remains in my traditional IRA on Jan 1, 2026.  Being 2026, I have already made my non-deductible contribution of $8600 to my traditional IRA.  I'm hoping there is a simple fix for my mistake.

• Do I convert the $7 to my Roth IRA as a separate step (today!)  or as part of my 2026 backdoor ROTH IRA conversion (i.e., $8607 plus any interest earned in 2026)?
• How do I enter Form 8606 for my 2025 taxes (enter $8007 to pay taxes on the $7 in 2025, or enter $8000 in 2025 and pay the $7 tax on my 2026 Form 8606)?
• What happens to my 2025 1099-R, and 2026 1099-R, given the timing of the conversions; and how do I enter these in Turbo Tax?

Any other advice on fixing this?  The experts in this community have always been great, thanks in advance for making taxes easy.

[baldietax · Accepted solution]

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. 

[baldietax]

this may be helpful also

https://www.whitecoatinvestor.com/pennies-and-the-backdoor-roth-ira/

[dpreas2017]

@baldietax Thank you so much for your response.  Clear and concise answer, proving again that the Turbo Tax community is an awesome resource!