The IRS has this reported as a code G. They're going to try to match this on your return. A code 7 is a normal distribution, which this is NOT. The proper code for your 1099-R is code 2 (Early distribution, exception applies) If you enter this code into TurboTax then the system will ask you questions that will lead to the correct conclusion.
However, because the code on your return will not match the code on the form that the IRS has this may result in a huge processing delay for your return. If that isn't important to you then you could file a paper return with a copy of the 1099-R and a written explanation attached. Or you can put code 2 in the TurboTax system, efile your return and see if you receive communication from the IRS about the issue.
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