I am 63 years old and reside in Califirnia. I am cashing out my 401k Retirement Plan. As far as the withholding election what percentage should I withhold for Federal Income Tax and do I need to withhold a percentage for my State Tax? If I elect not to any income tax what penalties might I incur come tax time?

You will owe ordinary income tax on the amount of the withdrawl, to both the feds and the state of CA. Usually the company will automatically withhold 20% for federal income tax, but you should check to find out if this is the case. It's impossible for us to advise you whether this is the correct amount to withhold without knowing how much you are withdrawing, what you other income level is, and whether you are having any other income tax withheld. Be aware that if you do not have enough tax withheld you may owe more tax when you file your state and federal income tax returns next April, and if you owe a significant amount you may be subject to interest charges for under-paying throughout the year. Assuming you receive your distribution by Dec 31, you should review your tax situation and pay any additional tax owed as estimated tax payments to both the feds and the state by January 15 to avoid any interest charges.