My niece lost her job in Michigan and cashed out her 401 K in several distributions throughout the year. The distribution code on the 1099-R is "1". I am using Turbotax to complete her return and the Michigan return is asking for the source of this retirement plan. The choices are:
Identify the source of the distribution by entering:

G - if the pension is from a government or public source (including military and railroad retirement)

P - if it is from a private source or an IRA

C - if it is a 2009 Roth conversion

N - if it is an other pension subject to Michigan tax

Which code would I use in this instance?
In addition, does it make financial sense to convert at least a portion of my 401k to an IRA and would the tax treatment differ in any way?

Thanks for your help.

The distribution IS taxable income on her Michigan return.

Enter "P".