Rollovers


A rollover is a way for you to move cash or other assets from one retirement plan to another retirement plan, such as a 403(b), 457(b), or 401(a) plan, or to an IRA

There are two types of rollovers: direct rollovers and indirect rollovers.

Direct Rollovers

A direct rollover is a good way to move amounts in a former employer's retirement savings plan account to your new employer's plan. Also known as a trustee-to-trustee transfer, a direct rollover does not require any tax withholding and you incur no tax penalties for early withdrawal. Best of all, your savings will keep on growing tax deferred. Just make sure your new employer's plan accepts rollovers before the check is written (most plans do).

Here's how it works: you authorize your former employer to write a check for the amount you have in that employer's plan, payable to your account in your new employer's retirement savings plan.

Indirect Rollovers

With an indirect rollover you have your former employer write a check, payable to directly to you, for the amount you have in that employer's plan. Once you receive the check, you have 60 days to redeposit it into a new retirement account. If you don't meet the 60-day deadline, the IRS will consider the payout a "taxable distribution" and you'll have to pay taxes on it—maybe even tax penalties.1

Note that if you do an indirect rollover, the IRS requires your former employer to withhold 20% of your distribution as a prepayment on your federal income taxes. You will still need to redeposit the full amount of your distribution—i.e., the amount you received from your former employer plus an amount equal to the 20% the employer withheld—to avoid creating a taxable event.


1 A 10% federal income tax penalty may apply if you are under age 59½ and the payout is from a 403(b), 401(a), or 401(k) plan (or consists of funds that were originally contributed to a 403(b), 401(a), or 401(k) plan).

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