Your client properly reported the earnings in 2023 tax returns, in the year the excess contribution was made.

Moreover, Lacerte handles your 2024 data input correctly; it reports the investment earnings as taxable income in 2024 because you used code 8J.

The source of the problem is the 1099-issuer. It put the wrong code; it should have been P instead of 8J. Your client should ask for a corrected Form 1099-R.