You are choosing to ignore the legal definition of "rollover." Section 402(c)(1)(B) of the tax code defines a rollover as being the transfer of funds to an "eligible retirement plan." Section 402(c)(8)(B) defines "eligible retirement plan" and does not include an HSA in the definition. Therefore, an HFD is not a rollover and code G, which is only permitted to be used to report rollovers, is not permitted to be used to report an HFD.
Banks have well-earned a reputation for misusing code G. Local branch employees are notoriously poorly trained with respect to initiating distributions from retirement accounts, mark the wrong box on third-party forms commonly used by banks for initiating the movement of funds from IRAs, and the back office blindly reports the transaction based on the mismarked forms.
There is nothing wrong with TurboTax's ability to handle an HFD properly reported of Form 1099-R. It has done so for many years. TurboTax cannot be expected to handle an improperly reported HFD.
