It shouldn't be subject to penalty. I replicated your entry, using code 1 in box 7 and indicated that it was an IRA distribution and I wasn't subject to the penalty. It is possible you didn't check the box indicating it was an IRA distribution (next to box 7 on your Form 1099-R). If you didn't do that, it would not be exempt from penalty as it has to be an IRA distribution.
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