Yes, the correct answer for you, is, "Did something else with it".
Many people have complained about the wording of this question, but the purpose of the question is to ask, if you rolled this amount over, or did you keep it outside of a retirement account.
If the money is rolled over, it is not taxed at all.
If you did anything other than roll it over, it is taxed. That is why your tax due jumped. As long as you enter the taxes withheld in box 4 of your 1099-R, it will be applied to your tax return.
Even though this answer is lumped with the cashed out option, there is no extra penalty on the money unless you are under age 59-1/2.
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