When making this distribution, can taxes be withheld for Federal and State payments in excess of the $10,000 penalty free amount? That is, can I receive the full $10,000, but withhold $2,500 for Federal income taxes (as an example) and not be penalized on the $2,500? After all, I'm not distributing those funds, but simply covering the additional ordinary income tax liability I'll incur from the $10,000 distribution. Thanks!
