When you make a withdrawal from a 401k, it is taxed and if you are under 59 1/2 you are also penalized.
The total tax for the withdrawal is not calculated until you file your return and is based on your total taxable income.
Suppose you have too much withheld from your distribution. In that case, you will receive any overpayment in your refund (or it will be applied toward your total tax liability, reducing any payment due).
It is a personal decision if you want to have additional withheld so you have a larger refund.
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