What is Rollover?

A rollover lets you move money from one retirement account to another without triggering taxes or penalties. Performing a rollover allows the investor to consolidate accounts, access better investment options, and maintain the tax-deferred or tax-free status of the savings without incurring early withdrawal penalties.

Rollovers are structured in two ways: direct rollovers and indirect rollovers. In a direct rollover (trustee-to-trustee), the funds are transferred directly between financial institutions, which is the safest method. In an indirect rollover, the plan administrator cuts a check to the account holder, who must deposit the funds into a new retirement account within 60 days. Indirect rollovers are subject to a mandatory 20% federal tax withholding by the employer, which the participant must replace out-of-pocket to complete the rollover and avoid penalties.

Under IRS rules, taxpayers are limited to one indirect rollover per 12-month period across all IRAs they own. Direct rollovers and plan-to-IRA rollovers are not subject to this one-rollover-per-year limit.