This needs to be picked apart a bit.

Yes, if you remove the excess by the due date of the return for the same year as the contributions, you have no excise penalty (the 6% on excess). You still use Form 5389 when there are other considerations such as early withdrawal; and Form 8606 for issues such as basis and earnings, as applicable.

They needed to each take out their excess from the same account(s) they put it into. It's not like RMD and can't be combined across people or account type(s).

I like, for instance:

https://www.investopedia.com/what-to-do-if-you-contribute-too-much-to-your-roth-ira-4770686

The loss is not deductible:

https://www.investopedia.com/articles/retirement/05/012505.asp

I don't know that losing $500 means taking out $500 less (unless that's the only amount they ever put in or had in those accounts). They have to do the math for overall allocation. Did they make that leap, or do the math? They have to be able to attribute the loss accordingly, otherwise.

https://www.investopedia.com/net-income-attributable-definition-5223368

https://www.investopedia.com/articles/retirement/04/042804.asp

Yes, there will be a 1099-R for 2023, and it might or might not be coded P for Prior year, but you all know that's what it will be, and reported for 2022.

Don't overlook Pub 590-B.