Q. Why is full amount taxable if the money sent to plan was money already taxed as income?
A. It isn't. You've entered it wrong or you're looking in the wrong place. The new IRS forms keep expanding. It's now effectively three times as long as the old "long form".
Since it's a fully non qualified distribution, the calculation of the taxable part is easy: it's the amount in box 2 of the 1099-Q. You'll find it entered on line 8z of Schedule 1, then included in the amount on line 8 of form 1040. The 10% (10% of the box 2 amount) penalty (technically "additional tax") will be on form 5329, then line 8 of Schedule 2, and ends up included on line 23 of form 1040.
