I corrected the dollar amounts in my previous reply to reflect an $80,000 distribution rather than a $90,000 distribution.
I would expect most of the $80,000 distribution to fall in the 22% tax bracket for married filing jointly, with maybe somewhere between 15% and 20% of it falling in the 12% tax bracket. That would make the addition to your tax liability around $16,000. If so and your refund would otherwise have been the same as last year, around $4,000, that plus $10,001 of withholding on the 403(b) distribution would leave you about $2,000 short, but you need to prepare a simulated tax return to be sure, taking into account all of the details that depend on your AGI which will be nearly double was it otherwise would have been. Your $10,001 of tax withholding was only 12.5% of the distribution, so it seems certain that the withholding by itself would not cover the additional tax liability generated by the $80,000 distribution.
If your other income remains steady at around $91K in 2021 and 2022, spreading the $80,000 over 3 years could result in tax savings of around $3,000 over three years due to a substantially larger portion being taxed at 12% instead of 22%. That assumes that there are no changes to the tax-rate structure before 2023. $3,000 of overall tax savings would more than cover the estimated $2,000 shortfall if all $80,000 is included in income on your 2020 tax return. Spreading the income over three years might also make reporting a little easier if you end up repaying any of the distribution to the 401(k) within the three-year repayment period.
