See also <a rel="nofollow" target="_blank" href="
https://www.tax.ny.gov/pdf/memos/income/m02_9i.pdf">https://www.tax.ny.gov/pdf/memos/income/m02_9i.p...>
The withdrawal is not taxable if it is from an IRA or is part of a *periodic* payment from a retirement fund, such as a 457. A lump sum, one-year withdrawal is taxed fully, no exclusion whatsoever.
The problem is that TurboTax mistakenly applies the exclusion on the NY form! It assumes, mistakenly, that the withdrawal is part of a periodic payment. The problem is that it never asks to confirm that!
