401K Withdrawal

I have around $22000 in a company 401k company that I want to take out as a distribution. I am gone from the company and am 62 years old. The company will not let me take the money as a cash distribution without withholding

20% for taxes. They say the only way I can avoid the 20% is to roll the funds over to a bank IRA. The thing is that I have very large medical and other deductions that will more than cancel out this income, so I will owe no taxes on it. By having 20% withheld, I will essentially be giving the government a free loan of the money for a year until I file 2013 taxes. Since the company won't let me have the funds without taking the taxes out, is there any way I can rollover the funds to a bank IRA and then take a distribution from the bank without having taxes withheld?