Thanks so much for taking the time to reply with such a clear explanation. That is a huge help. I have not yet submitted so I would appreciate your help in how I should mechanically enter this into TurboTax. I have removed the $178 from schedule 1. I have a 1099-SA that shows the $715 distribution with code 2 (excess contributions) in box 3.
Although I have one 1099-SA for $715 with distribution code 2, are you saying I should enter 2 1099-SAs into Turbo Tax, one with $537 with distribution code 2 and 1 for $178 with distribution code 5 (Prohibited transaction). That will get me to the correct tax answer, but I will be entering 2 separate 1099's when in fact I only received 1 for the $715 total.
Thanks again for your valuable insights.
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