Separated from employer at age 56, withdrew from 401K, so I should get the over 55 exemption. Box 7 on 1099R has code 1 but, code 1 in Turbo Tax assesses the penalty.
Note - if I put Code 2 into Turbo Tax, it eliminates the penalty, but doesn't match my 1099R
That sounds like the plan administrator for your 401(k) account has the incorrect date of birth for you. Contact the plan and get a corrected Form 1099-R.
In TurboTax, you can indicate that you separated from service after age 55. As you progree through the interview screens, you would indicate this on the screen below. Click to enlarge.
