Glad you worked out the 'regular paymentsj' solution.
A 2 in Box 7 does represent Early Distribution; however, it also indicates that an Exception Applies to the Penalty for Early Withdrawal.
Carefully answer the follow-up questions after entering your CSA 1099-R.
Here are the most common exceptions to the Early Withdrawal Penalty (before age 59.5) as outlined by @SuperHal_Al:
1. Rollovers to another IRA (no tax due)
2. Disability
3. Medical costs exceeding 10% (7-1/2% if over age 65) of AGI
4. Separation from service at age 55 or older (pensions & 401K but not IRAs)
5. Substantially equal periodic payments(SEPP)
6. Military reservist called to active duty
7. Public safety employees separated after age 50
8. IRS levy
9. Education expenses (Only IRAs; not available for withdrawals from 401k plans)
10. Court ordered spousal payments
11. First time home buyer (Only IRAs; not available for withdrawals from 401k plans)
12. Beneficiary
13. Unemployed Medical Insurance
14. Age 59-1/2
15. See the instructions for form 5329,for some other obscure exceptions http://www.irs.gov/pub/irs-pdf/i5329.pdf
*exceptions to the tax on distributions: roll overs, charitable contributions by someone over age 70-1/2 and once-in-a-lifetime IRA to HSA transfers.
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