As to why you can keep the earnings in the Roth, that’s just the way it works. You need to pull out earnings if you’re avoiding that first year 6% tax. Once you incur that tax, the law no longer requires you to remove earnings to correct the error. Note that although the 6% isn’t based on earnings, in effect it’s a high rate of tax on those earnings unless you had stupendous returns, and is often greater than the amount of those earnings, so a tax of more than 100%.
Because this doesn’t affect anything on your 2020 income tax return, just send in the 5329 with your check for $420. You shouldn’t have to file a 1040X.
Don’t forget, you still have to pull out $7,000 by the end of this year to avoid incurring another $420 penalty.