Since the distribution (code 7) is not otherwise subject to an early-distribution penalty, there is no benefit or need to report it as an HSA Funding Distribution (HFD), so TurboTax won't offer you the opportunity to report an HFD. Simply report it as a regular distribution as you have already done and enter a regular personal HSA contribution of the same amount in the HSA section. The resulting deduction on Schedule 1 line 12 will offset the taxable income shown on Form 1040 line 4b.
Reporting the distribution as an HFD is only beneficial to those who would otherwise be subject to an early-distribution penalty on the distribution.
