@sabasu
1. Then you are done for 2020. You paid the penalty, you have nothing to amend.
2. You can't avoid the 6% penalty for 2021 unless you are eligible to make contributions for 2021. If so, you can count the 2020 excess as a 2021 contribution. If you are not eligible to contribute in 2021, you pay the 6% penalty again. (Again per #1, you don't amend 2020 because you paid the penalty, there is nothing to amend.)
3. Correct. There is no penalty assessed on Roth earnings derived from excess contributions. The penalty is on excess contributions.
4. All withdrawals of contributions from a Roth IRA are always tax-free. To avoid paying another 6% penalty on your 2022 tax return, you must withdraw the excess contribution from 2020 during 2022. But it sounds like you already did this. There is no need to withdraw earnings.
If you do withdraw any earnings, the withdrawal is subject to 2 different tax rules.
a. Non-qualified withdrawals are subject to income tax. A withdrawal is only qualified if you are over age 59-1/2 and you opened your first Roth account at least 5 tax years ago.
b. Early withdrawals (before age 59-1/2) are also subject to a 10% penalty.
If you withdraw earnings now for any reason, it will be non-qualified, because the account is less than 5 years old, so it will be subject to regular income tax. But you won't pay the additional 10% penalty for early withdrawals. ("Early" and "non-qualified" are separate concepts, although this can be confusing.)
At this point, you paid the penalty in 2020.
You are stuck paying another 6% for 2021, unless you are eligible to make new contributions for 2021.
If you withdraw the $7000 from 2020 during 2022, it will be tax-free and it will make the 6% penalty go away for 2022.
Leave your earnings alone until your account has been open at least 5 tax years, then you can withdraw the earnings at any time tax-free. If you need the money sooner, you will pay regular income tax.
(The 5 year tax rule works like this. If you opened the account on 12/15/2020, then 2020 is year 1. 2024 will be year 5, so you can make qualified withdrawals starting on 1/1/25, which is the beginning of year 6 even though it will not have been 1825 days.)
