I received the same type of 1099-R which generated an unnecessary form 5329 with an (nonsensical) exception code of '12' on line 2, which doesn't generate any additional tax.
When you look at the note in the upper right corner of the 1099-R it says:
"Report this income on your federal income tax return. IF this form shows federal income tax withheld in box 4 [THEN] attach this copy to your return."
Since box 4 is empty (NO tax withheld) it isn't necessary to include this 1099-R on the return.
