You can avoid the mandatory 20% tax withholding by doing a direct rollover to a traditional IRA, then taking a distribution from the traditional IRA and instructing the IRA custodian not to withhold any taxes; direct rollovers from an employer plan are exempt from the mandatory tax withholding. However, you'll still be subject to taxation of the distribution and your income tax liability for the year will be the same either way.
Be aware that underpaying taxes for any of the tax quarters of the year could subject you to an underpayment penalty, so unless you are covering the tax liability with estimated tax payments or tax withholding from other sources, you still might want to have taxes withheld. In fact, depending on your other taxable income, 20% tax withholding might not be enough.
What you use the money for has no bearing on the taxability of the distribution.
