Withdrawals from 401(k) plans are taxed as ordinary income. This will put you in the 28 or maybe 33% tax bracket. There is no income averaging rule that would allow you to spread the tax out over time. Because the money was deposited pretax, you owe tax on the entire withdrawal – original contributions and gains.
If it has been less than 60 days, then put the entire amount into a rollover IRA, or put it back in the 401(k). Do this instantly. Then, take your time to understand your options. You can leave the money in the 401(k), or you can invest in an IRA, or you can withdraw it. IRAs allow many more flexible investment options, and you would only pay tax when you withdrew it from the IRA. You could roll the money over into a traditional IRA, and not pay taxes until you withdraw it to spend it, or you can roll the money over into a Roth IRA, and pay the income tax, but then you get the benefit of tax-free growth from now on. If you keep the money as cash, and invest it with a stockbroker, not only will you owe income tax on the entire withdrawal now, you will also income tax every year on the capital gains in your stock brokerage account.
But if it has been more than 60 days, you're going to get hit with a huge tax bill and there is nothing you can do about it.
