They take out a percentage for withholding when you take it out, like you had from your paychecks. You still have to add the income to your tax return next year and it may push you into a higher tax bracket. Then all your withholding is subtracted from the tax to give you a refund or more tax due. So be very careful how much you take out. And if you are under 59 1/2 there is a 10% Early Withdrawal Penalty.
