Retirement tax questions

Hi,

  I'm trying to file my 2021 taxes and I don't see any options described above to enter the exception.  We had twins last year (in 2021) and so withdrew $10,000.  We've added them onto our taxes (married, filed jointly) with ssn's, but after I enter the 1099R (it got imported) there's just a note that says "we'll check for exceptions later" but then it never happens.  I'm using TT deluxe online. I went ahead an paid and can see the $1000 penalty is being added.

 

Also, please don't tell me we have to paper file because of this...

 

P.S. It appears that my financial institution entered a distribution code of 1 on the 1099R, but it looks like it maybe should be 2 because exceptions apply...so do we need to try to get them to fix it?  If I just change it to 2 then the penalty does get removed, but...seems kind of dodgy to just do that.