As I said, none of this causes you to be taxed more than once on the same money. Because higher IRA balances mean that more is taxable now, it also means that less of your future distributions will be taxable later.
Your unexpectedly small refund is due to an unexpected amount of ordinary income taxes, not penalties.
The benefits or drawbacks of deferring income by contributing to a retirement account are different for every individual. To some extent it depends on whether you expect to be in a higher, lower or the same tax bracket in retirement than during the earning years. With the recent reduction in the tax-bracket rates, the benefits of having deferred income to future years have increased. However, because distributions from retirement accounts are taxed as ordinary income, an argument can be made for investing in capital investments outside of a traditional retirement account rather than in a traditional retirement account to obtain taxation of gains at more favorable long-term capital gains rates. It's the job of financial planners to help you navigate these trade-offs (although some financial planners are better than others at doing so). Because the taxability of Social Security income can depend on the amount of your other taxable income, the years prior to beginning to receive Social Security income are especially important for planning how you will take your distributions from your retirement accounts to minimize the tax consequences.
