If I make a penalty free early withdrawal from my 457 retirement plan and have fed and state taxes withheld upfront, am I obligated to pay further taxes on it when filing my taxes?

[dmertz · Accepted solution]

The actual tax liability attributable to the 457(b) distribution isn't determined until you prepare your federal and state tax returns.  Whatever amount is withheld for taxes is applied as a credit on your tax return.  Depending on your overall taxable income, default tax withholding is often insufficient to cover the entire increase in tax liability.  If your overall tax withholding is insufficient to cover your overall tax liability, you'll have a balance due.  If it's more than enough, you'll get a refund.  Either way, it's not determined until to prepare your tax return taking in all factors that affect your tax liability.