"But how does the remaining amount get taxed as ordinary income or should I be taxed on the entire amount when entering the 1099R now."
This would be easier if you'd simply disclose exactly what's in each Box of your 1099-R.
But, while you do enter the entire Box 1 amount received ($10K), you also enter the Box 2a amount ($5K). The Box 1 amount shows up on line 4a of the Form 1040 and the Box 2a amount shows up on line 4b of the Form 1040. YOU ARE ONLY TAXED ON THE LINE 4b amount.
So you get taxed (and maybe penalized) on $5,000 or ordinary income and you get taxed on a LTCG of $5,000.
