Turbo Tax is calculating a 10% penalty on a 401K distribution after the taxpayer was more than 59 and 1/2 years old. Box 7 on the 1099-R reflects the code 7 for normal distribution. How do you remove the penalty?
The form 5329 is used to calculate penalties on items other the early withdrawal but if you are certain that is it, I would recommend deleting the 1099R and re-entering it. If you import it previously, manually enter the 1099R this time and double check the boxes are correct. Also, review the age in the My Info section to insure the correct birthdate is entered.
If you selected code 7 on TurboTax's 1099-R form, TurboTax isn't including any 10% early-distribution penalty on your tax return for this distribution. You are likely misinterpreting a change in your refund for some other reason such as the loss of a Retirement Savings Contributions Credit because of this distribution.
Examine Schedule 2 line 6 to see that no penalty is being included there with respect to this distribution.