What Types of Rollovers Are Available

From SunAmerica Asset Management Corp.

There are three ways to move assets from one eligible retirement plan to another:

 

Transfer

In a transfer, you move assets directly from one eligible retirement plan to another without ever taking control of the assets. Transfers are limited to the same type of eligible retirement plan; for example, IRA to IRA, or 401(k) to 401(k). Transfers are tax-free and do not trigger any IRS reporting requirements.

 

Direct rollover

A direct rollover is similar to a transfer, but it is not limited to the same type of retirement plan. For example, you can roll assets directly from a 401(k) to an IRA. Like a transfer, a direct rollover is a trustee-to-trustee transaction. Since you never receive the assets, the transaction is tax-free; however, for each direct rollover, the IRA or plan provider will report the transaction to the IRS using Form 1099-R (a tax form used to report distributions from certain retirement plans).

 

Indirect rollover

Indirect rolloverIn an indirect rollover, you withdraw the money, take control of assets and then deposit the money into another eligible retirement plan. An indirect rollover is tax-free only if the assets are transferred to another plan within 60 days. If this requirement is not met, the entire distribution becomes taxable at ordinary income tax rates. A 10% federal tax penalty may also apply if the assets are withdrawn prior to age 59½. In addition, if you’re taking income from an employer-sponsored plan, 20% of your withdrawal amount will be withheld and applied to your federal income tax!