Accidentally opened ROTH IRA for tax year 2020

[tcvs]

I have accidentally opened ROTH IRA for tax year 2020. I am not qualified for ROTH IRA. I opened it in March and have some capital gains. The brokerage company that have Roth IRA doesnt let me to recharaterize the funds.

1. How do I withdraw and close the account ?

2. When I withdraw, do I need to withhold any taxes ?

3. How will the capital gains reported to IRS ?

[Critter-3]

1. How do I withdraw and close the account ? 

A Roth IRA contribution can be recharacterized as a traditional IRA contribution, or vice-versa, as long as the recharacterized contribution is valid in its own right.    Contact the broker and let them know it can be done and don't take no for an answer.

2. When I withdraw, do I need to withhold any taxes ?   

If you do close the account and take a distribution  then only the earnings will be taxable ... usually there are no withholdings required but you can request it.

3. How will the capital gains reported to IRS ?

There are no capital gains to report ... all earnings from an IRA  are oridinary income reported on a form 1099-R.

[dmertz]

As Critter-3 said, it seems unlikely that the IRA custodian would not permit a contribution to a Roth IRA for 2020 to be recharacterized to a traditional IRA contribution instead.  Since the contribution was made in March, perhaps the IRA custodian treated it as a contribution for 2019 for which the deadline for recharacterizing has passed.   If that's the case and you were not eligible to make that Roth IRA contribution for 2019, you should have reported the excess contribution for 2019 on your 2019 tax return, paid the 6% excess-contribution penalty and to now eliminate the excess you will either need to be able to treat it as some or all of your Roth IRA contribution for 2020 or obtain a regular distribution of the amount of the excess that cannot be applied as part of your 2020 contribution, leaving the gains in the Roth IRA since you will have paid the 6% excess-contribution penalty.

If the IRA custodian treated this as a contribution for 2019, the IRA custodian would have shown this on the 2019 From 5498 that they issued to you in mid-2020.   Check with the IRA custodian again to confirm the year for which the contribution was recorded and, if they actually did treat the contribution as being for 2020 as you indicated in your question, find out why they will not recharacterize this contribution as is permitted by law.

Note that if your reason for not being eligible to contribute to a Roth IRA for 2020 is having no compensation to support the contribution rather than having a modified AGI that is too high, you can't recharacterize and you'll need to obtain an explicit return of the contribution made for 2020.  As Critter-3 indicated, the IRA custodian will report the return of contribution on Form 1099-R with the taxable gains shown in box 2a that are subject to ordinary income tax and, if you are under age 59½, to a 10% early-distribution penalty.