If there is an amount in both Box 1 and Box 2a and the amount is the same, then the 1099-R says that the entire amount is taxable. Simply checking Box 2b does not eliminate the tax obligation. Is there an amount in Box 5. Ideally Box 2a should be blank and with Box 2b checked then you could calculate the taxable amount. If you have an amount in Box 5, your could make the adjustment by subtracting the amount in Box 5 from the amount in Box 2a and then in TurboTax enter the taxable amount Box 2a of the 1099-R.
To determine the amount to enter in Box 2a (Taxable amount), subtract the amount in Box 3 Capital gain, and Box 5 (Employee contributions) from the Gross distribution (Box 1) and enter that difference in the Form 1099R screen Box 2a.
You might want to ask Vanguard to correct your 1099-R. Otherwise, you could adjust the taxable amount, but be prepared to provide the documentation to the IRS to support your adjustment. It will be highly probable that the IRS will catch this and send you a letter and you will have to be ready to provide your support.
