When funds are shifted directly from one IRA to another, what percentage of tax is withheld?

When funds are shifted directly from one Individual Retirement Account (IRA) to another, the transaction is known as a direct transfer or custodian-to-custodian transfer. In this scenario, the funds move directly between the financial institutions without the account owner taking possession of the money. Because the individual does not receive any cash and the funds are transferred directly, there are no tax implications at the time of the transfer, and therefore, no tax is withheld.

This rule applies specifically to direct transfers, which are treated as non-taxable events. On the other hand, if an individual were to withdraw funds from one IRA and then deposit them into another, that would be considered an indirect transfer. In the case of an indirect transfer, 20% would typically be withheld for federal taxes because the account owner has taken possession of the funds, which can be mismanaged or delayed, potentially leading to tax consequences if not rolled over within the allowed timeframe.

Thus, in a direct transfer from one IRA to another, no percentage of tax is withheld, making "none" the correct answer.