You must enter the Form 1099-R and, when prompted, provide the required explanation statement describing what you described in your post here. Do not enter the $7,000 contribution into TurboTax. TurboTax will include on Form 1040 line 4a the $7,000 from box 1 of the code-8 Form 1099-R but will include on line 4b $0 as shown in box 2a of this Form 1099-R. The $0 in box 2a means that the distribution is nontaxable and therefore affects nothing else on your tax return.
