The amount of federal tax withholding will appear in box 4 of the client’s 2020 Form 1099-R reporting the distribution from the 401(k) and this tax withholding is credited on the client’s 2020 tax return no matter what the client does with regard to rolling over this distribution.  The important thing is that any amount of the distribution that the client intends to roll over must be rolled over by the 60th day following the date of the distribution from the 401(k) [assuming that this cannot be considered to be a CRD; if it can be considered to be a CRD, see Alan’s reply below regarding the extended repayment period].  If the client wants to roll over the entire gross amount, other funds will need to be substituted for the amount withheld for taxes.  The amount of tax withholding in excess of the client’s 2020 tax liability (the liability will generally be reduced from what it would otherwise be by rolling over some or all of the 401(k) distribution) will become their tax refund upon filing their 2020 tax return, effectively giving them back the substitute funds.

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