The client's prior employer closed her IRA account and sent a check of $672 to her for indirect rollover. The 1099-R shows total distribution of $840 with $168 federal tax withholding and code-2 early distribution with exception. She deposited the check and another $168 out-of-pocket contribution to her new IRA account AFTER 60 days. In her situation, the $840 distribution is taxable right? How much is subject to 10% penalty--$840 or $672? ProConnect didn't automatically show any penalty or Form 5329 with code 2, do I need to override and make 10% penalty and Form 5329 show?

The client later converted $840 IRA contribution ($672 indirect rollover plus $168 out-of-pocket contribution) to Roth IRA (backdoor Roth, her income is above threshold and IRA contribution are nondeductible). It looks like $168 is nontaxable because it's after-tax money contributed, and $672 is taxable to convert to Roth IRA? (She had a Form 5498 for traditional IRA showing contribution of $168, and a Form 5498 for Roth conversion showing amount $840)

Thank you!!!