Hi, I can help you today.
The 20% withholding
is typically seen when someone distributes qualified plan money (IRAs, 401(k)s, profit sharing, etc) as you said, before age 50 and 1/2 ... and it's just that, withholding.
In that scenario, (pre- age 59 and 1/2) if you decide to get that money back into an IRA within 60 days, all that withholding will come back to you when you do your taxes for that year. If you don't "roll it over" to an IRA then the withholding is simply extra withholding for that tax year (and depending on your tax bracket) may offset some or all of the extra 10% penalty (on top of ordinary income tax on that extra income).
Even though you won't face the extra 10% penalty for early retirement distribution, your company MAY be simply withhold as a default, to help you offset the extra income tax (again, just tax no extra penalty, if you're over 50 and 1/2) that the distribution generates for that tax year.
Depending on your plan, you MAY be able to elect not to have the taxes withheld IF you are over 59 1/2.
Finally, the amount that is withheld (if it is) is simply like withholding from you're W-2 at work. If you don't owe that much for that tax year, you get refund.
Finally, to roll to an IRA, may give you more control. You take a distribution only when you need, and only that amount is included in your taxes for that year (and, again, no penalty only ordinary taxes, since you're over 59 1/2).
Also, on your IRA, you may not be required to disclose your beneficiary to anyone. Either way, It's your choice, no-one else's.
Hope this helps!