What is the PA distribution type for a Beneficiary IRA RMD payment?

Your distribution is not taxable so the best option available is the Traditional or Roth IRA, I'm over 59.5. This will force the program to allow that compensation to go through non-taxed.

PA law: Distributions from IRAs are not taxable for Pennsylvania income tax purposes if they are received on or after reaching age 59 ½ or if they are paid to the estate or a designated beneficiary by reason of a participant's death.  

If you ever receive a letter of inquiry, you can tell them it was an inherited IRA and therefore tax free.

This really needs to be fixed in Turbo Tax.  Telling us to enter something that isn't true, really isn't a good option.

Thank you for at least giving us the information as to what needs to be done even though it is not accurate.

The "trick" used doesn't matter. 

Only the taxable amount matters.

You know it is an inherited IRA and so does the state of PA because the 1099-R Code is 4.