If you are seeing a penalty, you have entered this under Deductions & Credits. You need to delete that entry. You can do so by deleting the IRA Contribution Worksheet.
For Form 1099-R with code 7 in box 7, TurboTax will always present the question asking what you did with the money unless box 7 also includes code D or you indicate that the entire amount was RMD. Delete the Form 1099-R and try again, making sure to read and answer all of the follow-up questions carefully.
