I would normally advise option 1 over option 2, but it depends on your specific case. Option 1 means no carryover penalties, and you are over and done with the issue. Options 2 means a 6% carryover over penalty, but if you no longer have the cash in the HSA to do option 1, then option 2 is your only choice.
5239: Option 1 has no need for the 5239, because when you withdraw the excess, there is no carryover penalty. And if you choose option 2, the TurboTax will automatically generate the 5329 - you don't have to.
CA: If you had excess Contributions, TurboTax automatically handles this, because excess contributions are not taxable in CA. So don't do anything.
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