How much tax is withheld from funds that are transferred directly from one IRA to another IRA?

A direct transfer of funds from one IRA trustee to another IRA trustee is not considered a distribution or a rollover. The account holder never takes constructive receipt of the funds. Because this transaction is not a taxable event, there is no requirement for tax withholding. This method ensures the seamless and tax-free movement of retirement assets between financial institutions.

A. 15%: This is an incorrect percentage. Tax withholding rules for retirement accounts do not specify a 15% rate for transfers or distributions.

1. Internal Revenue Service (IRS). Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs). Chapter 1, under the section "Rollovers," subsection "Trustee-to-Trustee Transfers." The publication states, "A transfer of funds in your IRA from one trustee to another is not a rollover... Because it is not a rollover, it is not affected by the 1-year waiting period required for rollovers. Also, it is not a distribution, so no tax is withheld."

2. Internal Revenue Service (IRS). Topic No. 413, Rollovers from Retirement Plans. This official topic guide clarifies the distinction between a rollover (where you receive the funds) and a direct transfer. It notes that withholding does not apply to a trustee-to-trustee transfer because it is not treated as a distribution to the individual.

3. Cornell Law School Legal Information Institute (LII). 26 U.S. Code § 408 - Individual retirement accounts. The underlying U.S. tax code defines the rules for IRAs. Section 408(d)(3) outlines the requirements for tax-free rollovers, and the established interpretation, as enforced by the IRS, is that a direct trustee-to-trustee transfer is not a distribution subject to these rules or any withholding.