You do not need to amend your 2021 tax returns. Additional income and penalties must be reported by the beneficiaries. You should request a distribution of the excess contributions and the associated earnings (if any).
Excess contributions to a Coverdell ESA that are are not removed in a timely manner are subject to a 6% excise tax for each year the excess remains in the account at the close of the tax year (December 31). The penalty tax is imposed on the designated beneficiary, and is reported and paid to the IRS on IRS Form 5329.
Timely correction. The 6% excise tax can be avoided by withdrawing the excess contribution, and all earnings attributable to it by May 31 of the year following the tax year of the contribution. No extensions apply. The excess amount removed is not included in the designated beneficiary’s gross income, however, any earnings attributable to the excess are taxable to the designated beneficiary (but not subject to the 10% penalty, in the year in which the excess contribution is made.
If an excess contribution situation is not corrected timely (see above) it can be corrected at a later date; however, correcting the excess later may result in additional taxes and
penalties.
To correct an excess contribution in a later year:
If the excess contribution is withdrawn after the May 31 deadline described above, and the earnings on the excess are not withdrawn, then the excess contribution is included in the designated beneficiary’s gross income in the year of the distribution. (The taxable amount is prorated if the funds are used to pay qualified expenses.) The taxable portion of the distribution is subject to a 10% penalty tax. In addition, the excess amount is subject to the 6% excess contribution excise tax for each year the excess remains in the account after December 31.
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