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1) do I need to deposit the exact amount of the distribution plus whatever was withheld? Or can it be slightly more? I'm assuming it can't be any less, right?

The upper limit is the check plus the withholding. Less and you have a taxable distribution subject to the 10% penalty. Anything more counts as a current year contribution and also eliminates the "conduit" nature of the IRA.

2) Will this count towards the $2000 annual contribution to an IRA for my wife?

Rollovers do not count against your contribution limit.

Phil Marti
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