Just to clarify, then: "and then record a contribution to a traditional IRA (non-deductible in his case)."

Now you are confusing Contribution and Rollover.

Contributions can be deductible or not. Rollover is never deductible because it is not new money; it is moved money. And it is allowed to carry with it the same treatment as the "from" account when it is Deferred to Deferred.

If you want to treat it as a contribution, you would not need to gross it up, because this scenario is: I wanted to make a contribution and instead of selling lemonade to raise the money, I used money that already came to me another way. In this scenario, where it came from has nothing to do with the function of contribution.