In 2013 I opened a Roth IRA for year 2012, contributing $4000 for year 2012.
In 2014 I contributed $5500 to that same Roth IRA for year 2013.
In 2015, I realized I was not eligible to contribute to a Roth IRA in 2012 and 2013 due to MAGI exceeding the limit. I opened a new account (Traditional IRA), deposited $5500, then immediately did a conversion to a new Roth IRA. (This is the "backdoor" approach as I understand it, is perfectly legal, and what I should have done in previous years). So I believe my Roth IRA account #2 (for tax year 2015) is in good standing
So now, what exactly should I do with the first Roth IRA account that I contributed to (incorrectly) for years 2012-2013? Luckily (?) there is only about $500 of gain in the account at this time.
If I re-characterize it as "Traditional IRA", have I missed the opportunity to do the conversion to Roth IRA for years 2012 and 2013?
Out of curiosity: Had I not caught this error, what would be the implications at Retirement time when I tried to take money out of the Roth IRA? Would the funds be treated as ordinary income (plus penalty?)
Lastly, with all this seemingly "fancy footwork" opening Traditional IRA and converting to Roth IRA, what documents (if any?) do I need to hold on to when it comes time to withdraw from the Roth IRA at retirement time to ensure the tax-free benefit?