I thought earnings would be taxable and reportable in the year she withdraws them? If she withdraws them this year then this we would report them as taxable income on 2023 returns?  If that is inaccurate, then when she withdraws those contributions and earnings this year, how the plan administrator will report it for 2023 on 1099-R ? 

Are you saying even if she withdraws 2021 contributions and earnings in 2023, it must be reported on 2021 returns?

Now, I am questioning something else as well. Since her 2021 ineligible contribution was not withdrawn by December 2022, does she owe penalties for 2022 as well? What is the deadline to withdraw that 2021 contribution without 2022 penalties - was it December 31, 2022 or April 18, 2023 ( the 2022 tax return due date) ?

Edit: Two tax professionals said - you do NOT amend. When she withdraws this year, she will get a 1099-R for the withdrawal, and then you reconcile it for the 2023 return.