YN7SCH76SWXE
If you choose to have your employer make a direct rollover of an eligible rollover distribution to an IRA or another qualified plan, your avoid tax on the payment and no tax will be withheld. If you are changing jobs and want an IRA direct rollover plan of the new employer, make sure that the plan accepts rollovers; if it does not, and choose an IRA direct rollover to a traditional IRA.
In short, an IRA direct rollover is the movement of money from a retirement plan, like a 401k or profit sharing plan, to a Rollover IRA account. This is not the same as a distribution, where the account holder receives the account balance directly as cash. If that happens, the account holder may be subject to taxes, penalties and withholding on direct rollover.
An IRA direct rollover occurs when the funds from one IRA are sent to another without you, as the account holder, ever taking physical possession of the money.
IRA direct rollovers, in general, are the preferred way to move money from one retirement account to another, as a direct rollover will preserve the tax deferred status of your investments. However, you should be aware that there’s a clearly defined process for IRA direct rollover that you and the managers of your accounts must follow in order to successfully complete the rollover process.
Strictly speaking, there are two different ways to request an IRA rollover – an IRA direct rollover or an indirect IRA rollover.
When it comes to moving funds out of your IRA and into another, the question isn’t, “Why choose an IRA direct rollover?” but instead, “Why would you choose anything BUT an IRA direct rollover?” Doing otherwise has the potential to cause great confusion, not to mention open the door to a lot of potential tax problems. That’s because, in the eyes of the IRS, a direct IRA rollover transfer is vastly different from any other kind of IRA funds transfer. And when you’re dealing with the IRS, it pays to be precise with your terminology.
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