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.

When you select the IRA direct rollover option, your employer may transfer the funds directly by check or wire to the new plan, or you may given a check payable to the new plan that you deliver.

In choosing a direct rollover to a traditional IRA, the terms of the payee-employer’s plan will determine whether you may divide the distribution among several IRAs or whether you will be restricted to one IRA, For example, you may want to split up your distribution into several traditional IRAs, but the employer may force you to select only one, After the direct rollover is made, you may then diversify your holdings by making tax-free trustee-to-trustee transfer to other traditional IRAs.

You may elect to make a IRA direct rollover of part of your distribution and to receive the balance. The portion paid to you will be subject to 20% withholding and is not eligible for special averaging. The IRS allows plan administrators to bar a partial direct rollover if the rollover amount is less than $500.

An IRA direct rollover will be reported by the payer plan to the IRS and to you on Form 1099-R, although the transfer is not taxable. The direct rollover will be reported in Box I of Form 1099-R, but zero will be entered as the taxable amount in Box 2a. In Box 7, Code G should be entered if the direct rollover was to an IRA and Code H if to another qualified employer plan or to a tax-sheltered annuity.

If you work for a company that doesn’t offer an IRA program and are interested in saving for your retirement, you might want to consider opening a Roth IRA account. The Roth IRA is set up so that you can deposit income that’s already been taxed so that when you withdraw the money later in life, there’s no taxation due on the funds – all of the money you’ve saved is yours to keep.  In addition, if you have a pre-existing IRA from a previous employer or a traditional IRA that you opened on your own, you might want to consider doing a direct rollover to Roth IRA.

Since there’s a difference in the taxation rules that apply to each different type of IRA, you’ll want to go over all of the Roth IRA rollover rules with your financial advisor in order to make an informed decision on what to do with your money.  If you do decide to complete a rollover IRA withdrawal into a Roth IRA account, then you’ll have to pay taxes on the money that’s being rolled over from the traditional IRA. It’s best to complete this transaction in the form of a direct transfer in order to avoid any potential problems that may arise from handling the IRA rollover transfer money yourself.

Something else that you’ll want to do is to speak with your financial advisor about any other Roth IRA rollover rules that you may not know about that could influence your decision about whether or not to complete a traditional IRA direct rollover to Roth IRA. This way, you’ll know ahead of time what to expect from the Roth IRA rollover and can make a fully informed decision about the best possible courses of action for your finances.

In addition, there might also be IRA rollover limits that apply to you when transferring money from into a Roth IRA. For example, if you’re transferring money from a Simple IRA, the account will need to have been open for at least two years before it can be rolled over to another account.  Alternatively, you may be subject to restrictions in terms of how often you money can be transferred between accounts, especially if a rollover has occurred recently. Running your plans by your financial advisor can help to detect any of these restrictions that could affect your proposed rollover.

The general rule to always keep in mind is that like can receive like with little trouble.  For example, if you have an SEP IRA and want to move your money into a new SEP IRA rollover account, it should be a fairly simple process of signing a few IRA rollover forms.  In addition, a traditional IRA can be rolled over into almost any other type of IRA, except for a Simple IRA or a Designated Roth IRA.  In general, the rollover with the widest access to target IRAs is the Simple IRA, with one small catch – generally, you must have been participating in a Simple IRA for a minimum of two years before it can receive funds or you can rollover funds from the Simple IRA.

In addition, it’s worth mentioning the special case that exists with IRA direct rollovers from traditional IRAs to Roth IRAs.  Roth IRAs can receive funds from most other types of IRAs, but there will be tax consequences.  Roth IRAs are unlike most traditional IRAs, as they’re funded with post-tax contributions.  When you rollover pre-tax money into a Roth IRA, you’ll be required to pay taxes on the money you are contributing.

In previous years, there were few reasons to pay taxes now and move your money into a Roth IRA.  However, with the legislative changes taking effect in 2010, performing a traditional IRA rollover to Roth IRA is a much more attractive option.  These legislative changes affect not only contribution limits and income limits, but also how any taxes generated in 2010 can be paid.  If you’re interested in rolling your IRA over into a Roth IRA, talk with your tax accountant about the implications for you, both in terms of your tax bill and your investment strategy.

Once you’ve determined which types of accounts can receive your IRA direct rollover, you’ll want to be aware of a common assumption about these transfers that can lead to a mistake.  When you open a new IRA – usually when you start a new job – you may think that it’s immediately ready to receive your direct rollover.  That may or may not be the case.  The first day of employment isn’t always the day your IRA’s eligibility starts.  In some cases, there may be a delay of days, or even weeks or months.  A call to the trustee of the new IRA is the simplest way to find out if the account is ready and able to accept the rollover.

This may seem like a silly mistake, but it’s one that bears further scrutiny.  If you attempt to complete your IRA direct rollover before your account is able to receive funds, the target IRA could reject the rollover entirely, leaving you with a check for your account balance.  This moves your transaction to the realm of indirect rollovers, which could lead to significant taxes, penalties and mandatory withholding fees.