The correct statement about the energies in the system is:
The energy stored in the system is converted to kinetic, thermal, and sound energy.
When the two magnets move towards each other, the potential energy they had due to their magnetic fields is converted into kinetic energy as they accelerate toward each other. Additionally, when they collide, some of that energy is transformed into thermal energy due to friction and deformation at the contact points, as well as sound energy because the collision can produce noise.