This is a feature, not a bug, in the current TurboTax implementation. The developers believe it is correct under current IRS guidelines (the problem is that the IRS combined two lines into one on the "simplified" Form 1040, and TurboTax has decided on a peculiar implementation). Apparently, the IRS has ok'ed this implementation, despite the fact that it seems counterintuitive. As long as the taxable amount is correct, no issue.
@bcjc As I commented on another thread:
This is a problem that needs to be fixed. Surely there is someone at TT that sees the bigger picture? It is not satisfactory to say that the IRS is OK with it because TT surely knows what they want to see on line 4a, regardless of how the instructions MAY be interpreted it. And just because the IRS hasn't made an issue of it now doesn't mean they won't in a couple of years when they run the matching program to see that the gross distribution amount on 4a agrees with the 1099s reported by payors.
Does TT want to have to deal with customers who are getting letters from the IRS asking why the line 4a amount is understated?
You might want to read some of the other threads; just search on line 4a.