I'm not sure about line 4b. When there is only a single return of contribution from an account in a given year, there is no reduction in taxable income for the loss attributable to the contribution being returned; the Form 1099-R would have a zero in box 2a. When there are two returns of contribution from the same account where only one of them has an attributable loss, it's not clear to me if the two adjustments are aggregated (which in this case would result in $7.13 in box 2a) or if the attributable loss just disappears (which in this case would result in $20.24 in box 2a). My guess is that they would be aggregated and box 2a will have $7.13. The difference in tax liability between these two numbers is ordinary income tax (at your own marginal tax rate due to kiddie tax) and 10% penalty on $13.11, the difference between $20.24 and $7.13, which amounts to only a few dollars which the I doubt the IRS would pursue.
1. The first Form 1099-R is a return of contribution, not a rollover. I would expect the two returns of contribution to be reported on a single Form 1099-R which is why my guess is that the attributable gain of the first one will be aggregated with the attributable loss of the second one as you suggest for the code JP 2022 Form 1099-R. This Form 1099-R gets reported on the 2021 tax return.
The second Form 1099-R is the code J 2022 Form 1099-R that you described and will be reported on the 2022 tax return. Disregard what I said about doing the rollover before filing the 2021 tax return since this distribution and rollover has no effect the 2021 tax return. Just make sure that the rollover of the $1,250 is completed by May 3, even if it has to be rolled over to a Roth IRA at a different custodian because of Vanguard's lack of understanding.
Q1: Looks good.
Q2: Nothing about the original $1,250 and its rollover goes on the 2021 tax return. It goes on the 2022 tax return.
Q3: Yes, the 2021 tax return is complete with regard to all of this.
Q4: The deposit of the $1,250 is a rollover, not a new regular contribution. It has nothing to do with yearly contributions. Vanguard only needs to know that it's a rollover of a regular $1,250 distribution that was received less than 60 day prior, a "60-day rollover."
