You are able to use the medical expense exception on your Form 5329 and claim the expenses paid on Schedule A.
You will want to treat the withdrawals that were used for medical expenses as an exception to the 10% penalty on Form 5329, as these amounts do qualify.
Additionally, you can claim all of the medical expenses paid using these (or other) funds. You are correct that they will not be deductible until the amount exceeds 10% of your adjusted gross income (AGI) (this amount is reduced to 7.5% if you were born before January 21, 1952). You will need to enter all the medical expenses paid to get the proper amount of the deduction - TurboTax will calculate the amount that can be deducted.
Using the exception to the penalty does not mean that you cannot claim the deduction for the expenses paid as an itemized deduction.
