Using turbotax form 5329 how do I enter exception number two on question 2. My spouse is a retired educator receiving a pension and retired in 2016 at age 52.

Exception 02 is the exception for distributions that constitute a series of substantially equal periodic payments.  On the page where TurboTax lists the possible exceptions, this is the one where you would enter the taxable amount of the distribution.

It's odd that the payer did not use code 2 in box 7 of the Form 1099-R since they should know that an annuity produces a series of substantially equal periodic payments that would automatically qualify for this exception.  With code 2 in box 7, no Form 5329 is needed.