I think you are correct.
The "normal" case is that your plan contributions are not taxed on the federal return and not taxed on the state return. When you retrieve money from this qualified plan, you don't get to deduct it in Utah.
Only if the contributions to the plan were tax-free on the federal return and also you were taxed on the contributions by a state or other entity, do you get the distribution tax-free in Utah.
In the land of taxation, every dollar is taxed sometime. If you contributed money that was tax-free to a plan, it makes sense that you would pay tax on that money when it came back out. Utah is addressing the case of you paying tax to somebody (even if not Utah) on the contributions, so in this case, the distribution would be tax-free in Utah, as if Utah had taxed the contributions.
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