I transferred my Traditional IRA from one custodian to another. This was the second attempt at a transfer because the first time it didn’t go through since custodian #2 refused to transfer one of my stock positions that they don’t allow their customers to own.

Anyway, I put in the second transfer request for partial account transfer (entire account securities + cash minus that one stock position that I was planning on leaving at custodian #1) and it had been a while since the request and nothing had transferred, I thought the transfer was again cancelled as had happened before (no one notified me the first time, I had to call to see what the hold up was). I wanted to make some trades, so in that account sold one stock and bought two positions. Well, the transfer ended up going through, and custodian #1 sent the stock that I had already sold as well as the cash that was in the account (prior to buying the additional securities) in addition to the new securities I bought.

Long story short, they sent Custodian #2 about $10k more than they should have because of the above error on my part for the trades that occurred after Custodian #1 verified everything that needed to be transferred.

So my IRA at custodian #1 has a negative balance (around $10k, portion of it is negative stock position for the stock I sold and the remaining is negative cash balance).

I talked to them and there were two options, and they couldn’t recommend one over the other because they advised me she wasn’t a broker and couldn’t give advice.

1) I send Custodian #1 a letter telling them to reverse the transaction for the exact cash amount I’m short as well as the positions I’m short, they take it back from Custodian #2, she called this a reversal. This is a letter of indemnity holding them harmless legally/financially citing this was not Custodian #1’s fault.

2) I simply institute an IRA transfer online for the stock positions and cash to transfer it back into my original IRA account.

A third option I may have, and tell me if I’m wrong with this. Since I have not contributed any for 2022 to my IRAs, is to contribute 6k (before April 18 for 2022) and another $4k or whatever the remaining negative balance is (for 2023 contribution) to bring it up positive (these would not be tax deductible contributions since my income would be over the limit).

My question is, which option is better (if any) and was this a prohibited transaction?

Thanks.