"My wife contributed $6500 to her Traditional IRA and I am now being told she cannot take contribute that much because of our income. I was also told she has to remove it or I we will pay a penalty. Can you tell me if this is correct? I do not understand why."
That makes no sense. The tax preparer is probably confusing eligibility to deduct the contribution with eligibility to make the contribution (although a tax preparer should know better). With at least $6,500 in box 1 of your wife's Form W-2, she is certainly eligible to make a traditional IRA contribution but is not eligible to deduct the contribution due to being covered by a workplace retirement plan.
I assume that you file a joint tax return. With MAGI being less than $218,000, your wife is eligible to make a Roth IRA contribution which would be far better than making a nondeductible traditional IRA contribution, so your wife might want to recharacterize the traditional IRA contribution to be a Roth IRA contribution instead.
