Case Part 1:  The client changed jobs and forgot about her retirement $ from her last job. So her prior employer closed her 457(B) account and sent a check of $672 to her for indirect rollover. The 1099-R shows a total distribution of $840 with $168 federal tax withholding and Code-2 "early distribution with the exception"(Box 1 $840; Box 2a $840; Box 2b only "Total distribution" marked; ). She deposited the check and another $168 out-of-pocket contribution to her new IRA account AFTER 60 days.

My questions are: (1) In her situation, the $840 distribution is taxable or non-taxable? (2) does she have to pay a 10% penalty for more than 60 days of rollover? Proconnect doesn't show a form 5329 since it is Code 2. (3) How much is subject to a 10% penalty--$840 or $672? 

Case Part 2 (this is the second part of the case): The client later converted $840 IRA contribution ($672 indirect rollover plus $168 out-of-pocket contribution) to a Roth IRA (backdoor Roth, her income is above threshold and IRA contribution are nondeductible).  (She had a Form 5498 for traditional IRA showing the contribution of $168, and a Form 5498 for Roth conversion showing amount $840) Also, she received another form 1099-R (box 1 & 2 shows $840; Box 2b all Marked; Box 7 Code 2 again with a mark "X").

My question to case Part 2:  Is this $840 distribution taxable or non-taxable?

Thank you!