I was able to find a little bit more information. The Form 1040 Instructions state the following:
"If your Form 1099-R shows a taxable amount, you can report that amount on line 5b. But you may be able to report a lower taxable amount by using the General Rule or the Simplified Method or if the exclusion for retired public safety officers, discussed next, applies." For more details, I went to IRS Publication 939. For my situation, I can't use the Simplified Method; TurboTax didn't ask enough question to determine that. However, I believe I can lower the taxable amount using the General Rule which is discussed in the publication. If I do that, I cannot rely on the Form 1099-R to show the correct taxable amount in future years. I imagine the annuity administrators, used the method which was simplest for them, but if you don't mind reading tax publications and completing a worksheet, you might be able to lower the taxable income amount.
