What will be withheld is 20%, the minimum amount required by law. The actual tax liability that you incur will be determined by your marginal tax rate for ordinary income. If you fall in, say, the 25% federal tax bracket, the 20% withheld for taxes won't quite be enough and the remainder will need to come from withholding on other income, estimated tax payments, or a payment made for a balance due on your tax return. A similar calculation would be necessary to determine your state tax liability.
You can continue to defer the income by rolling it over to a traditional IRA, but once rolled over the money will become subject to the possible 10% penalty for early distributions from a traditional IRA. If the money is moved by the 457(b) plan administrator directly to an IRA, the mandatory tax withholding is avoided.
