Q. Can I exempt the full $ 500 from this additional 10% in line-6 of form 5329 ?
A. No. TurboTax is doing it correctly and $438 is the correct amount for line 6 of form 5329.
Your $500 scholarship only reduces the box 1 amount ($800) to be used in the calculation.
700 * (500/800) = $438 is correct.
