You need to tell the software what her contributions to the Roth were. After inputting her 1099-R exactly as printed, you will land on a 1099-R summary screen. Click Continue, and after a few questions you will see Enter Prior Year Roth IRA Contributions (see screenshot). This is the amount that will be exempt from tax, unless you're over 59.5, in which case it would automatically be tax-free (if the 5 years had passed)
