I have a question regarding the benefit limits for contributing to a Roth IRA. I converted my IRA to a Roth a couple of years ago, just when the Roth started up. I have $10,868 per year added to my income, to pay for the taxes due on the conversion. I just contributed $2000 for last year, plus another $2000 for 2001. I then remembered that there is a limit of $95000 - $105000 for contributing (i'm single). My initial tax calculations shows an AGI of about $104000 for 2000. If I take out the $10,868 from the conversion, I'll be under the $95,000 limit. I seem to remember some talk about ignoring this when calculating the contribution limits. Is this true? An I OK, or do I have to back out this contribution?
On a related note, suppose I need to back out this year's contribution, the one for 2001? How easy would this be? I suppose I would need to contact Fidelity on this, But I know there is a procedure to back out these contributions. I'm just wondering how easy this is. Are there any penalties involved?

The phase-out range for a single individual is actually $95,000-$110,000.

You cannot ignore the $10,868, it must be added to your income. The rule you are referring to ,is for purposes of a conversion. Let's say you wanted to convert your $100,000 IRA to a Roth IRA this year. You already have an AGI of $90,000 and the $100,000 will be added to your AGI when converted. We know that if one's AGI is over $100,000, one cannot convert- right? However, the IRS permits individuals to ignore the conversion amount for purposes of determining eligibility to convert to a Roth IRA.

If your AGI is $104,000, you may convert only a part of the $2000. The steps for determining the amount permissible can be found in IRS publication 590 at http://www.irs.gov.
Your two options.
1. Remove the full $2,000 or the excess contribution amount as a return of excess contribution ( the excess amount will be determined by using the formula given in IRS publcation 590)

2. Recharacterize the full $2,000 or the excess contribution amount to a traditional IRA

For last year's contribution, you have until April 15 this year, plus any extensions granted by the IRS to do a return of excess. For this years, you have until April 15 2002.

To rechracterize, you have until October 15, following the year for which the contribution was made.