[mention://94862622
@johnszalay], I think you are reading too much into the #2 option. You wife did do something else with the money. The parenthetical is just intending to give you an example.
The distinction TT is trying to get is whether the withdrawals went back into another tax-deferred account (e.g. a rollover) and therefore should not be taxed. Either a cash out or a monthly withdrawal or indeed random withdrawals all mean that the withdrawals will be taxed.
There may be further questions to determine if some of the withdrawals are not taxed (because they are a return of previously taxed contributions--not very common).
Try choosing question #2 and answering any followup questions. If both your and your wife's 1099-R income show up as you expect on 1040 line 16 (a/b), then I would say you are good.
I don't know why they are treated separately in the first place. Are they both CSA-1099-Rs? Or is one a regular 1099?
If you want to follow up with support, you can start here:
https://support.turbotax.intuit.com/contact/ but I wouldn't bother if you can get both pension incomes to show up.
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