Question regarding recharacterizing a Roth IRA contribution

[zurich78]

I got a little excited about funding my Roth IRA a couple weeks ago and today I realized that last year, I exceeded the maximum for direct Roth IRA contribution.

So a couple weeks ago I put $1,500 directly in to my Roth IRA account.  It's been in Cash Core since then (I haven't invested it in anything yet).  Since then, it has accrued interest of $0.02 bringing my Cash Core balance to $1500.02. 

What should I do?

- Request withdrawal of the $1,500, put it back in my savings account and just wait until the end of the year to do a full $5,500 backdoor Roth?  If I do that, and the $0.02 extra in Cash Core stays the same, would I still do a $5,500 contribution or do $5,499.98 contribution?  I'm guessing the latter in this scenario, since, I'm going to have to pay taxes/penalty on that $0.02?

OR

- Recharacterize the contribution as a non-deductible traditional IRA contribution instead.  Now, if I do this option, can I invest the $1,500?  Reason I ask is, if I invest the $1,500 and let's say by year end it is $1,700, would I be allowed to put in $3,800 non-deductible contribution in to that tIRA and then roll it over to my Roth with no tax consequences?  If so, would a good backdoor Roth IRA strategy be to put some money in a tIRA, invest it tax-deferred, hopefully it grows a little and then that's less money I need to pull out of savings to fund the backdoor later?  (Course the risk is the tIRA declines in value and I have to overfund it I suppose)

[matchewed]

http://www.irs.gov/publications/p590/ch02.html#en_US_2013_publink1000231024

The pub590 direct link to the question as to what happens if you contribute too much.

Specifically -

Withdrawal of excess contributions.   For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. This treatment only applies if any earnings on the contributions are also withdrawn. The earnings are considered earned and received in the year the excess contribution was made.

  If you timely filed your 2013 tax return without withdrawing a contribution that you made in 2013, you can still have the contribution returned to you within 6 months of the due date of your 2013 tax return, excluding extensions. If you do, file an amended return with “Filed pursuant to section 301.9100-2” written at the top. Report any related earnings on the amended return and include an explanation of the withdrawal. Make any other necessary changes on the amended return.

[zurich78]

Thanks.  Actually, my 2013 contribution is fine.  I made a 2014 contribution directly to my Roth IRA, but I know I'm going to exceed the maximum limit again this year.

So I know I need to get the money out of the Roth, I'm just not sure whether I should put it in to my tIRA and immediately convert it in to my Roth, or, if I'm allowed to accrue gains on the money in my tIRA and convert the contribution plus those gains later in the year.

I'm just not sure if the IRS will care if I do multiple conversions tIRA > Roth during the course of the year (summing to $5,500) or if they rather I just do a one-time conversion for my entire annual Roth contribution.