For your situation, select "Yes, I took money out of this nonqualified or Section 457 plan".
I contacted both agents, and it seems those answers were from two different questions where there were two different situations. One answer was from tax year 2022 when the IRS changed the reporting procedure and the agent provided a "work-around" so the income wasn't double-taxed.
When funds go IN, they are NOT reported in Box 1 on your W-2 (not subject to income tax) but they are included in Box 3 and subject to FICA tax.
When the funds are withdrawn, they are then subject to income tax, but not FICA.
When you select "Yes, I took money out of this nonqualified or Section 457 plan"
the distribution is properly listed on Schedule 1 so that they are subject to income tax but not FICA.
IRS LINK see page 32
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