This simply means is that the financial institution holding your IRA assets will provide directions on how to transfer those assets to an IRA directly to another financial institution.  This bypasses the need for you to take possession of the funds (ie.  This means, that in order to satisfy the 60 day rule, you’d have to deposit not only the check proceeds from the 401k, but the money withheld for taxes! Same Property Rule:  IRA Rollovers from one IRA to another must consist of the same property. Receive a check payable to you). A rollover IRA is a special type of IRA that is used to receive distributions from an employer sponsored qualified plan, such as 401k, 403b, defined benefit or profit sharing plans.

If you are planning to, or have already initiated an IRA Rollover, watch out for these common mistakes, because one misstep can cost you dearly.  The IRS frowns upon this transaction and will consider this as a cash distribution, which of course, will cause a taxable event.  Specifically, you must include the amount of the distribution as ordinary income on your taxes, and if you are younger than 59 ½ you also get sacked with a 10% penalty on the withdrawal. Hands down, the most effective way to avoid IRA transfer blunders is to request “trustee-to trustee” transfers.

 The exception to this rule is a distribution from an employer sponsored qualified plan.  That could spell disaster for you, both in terms of taxes and the wasted opportunity to grow your IRA’s on a tax deferred basis.   Frankly, the “trustee-to-trustee” method this is the easiest way to transport your money from one bucket to the next if you are merely moving your IRA from one custodian to another. So what is a Rollover IRA?  In other instances, a check may be sent to the investor, but payable to the new provider or custodian for your benefit (ie.  Specifically, this rule prohibits your ability to take a distribution from your IRA and purchase other assets with that cash, only to later deposit the newly acquired assets into another IRA.

Credit: Volkswagen Finance España

  Not All Rollovers are Created Equal Pay particular attention to rollovers from employer plans like the 401k.  Rollovers are slightly different than “direct rollovers”. One Year Waiting Rule:  You may not make another rollover from the same IRA to another IRA if you have already conducted a rollover (full or partial) from that same IRA account.  Conversely, with an indirect rollover, your 401k plan proceeds are distributed to directly you, but the law requires that the plan administrator withhold 20% of your funds in an indirect rollover which is sent directly to the IRS.  A “transfer” is not necessarily considered a “rollover”, can be done an unlimited number of times, and is not reported as a distribution, which therefore exempts you from the one year waiting rule. Check payable to Fidelity FBO John Smith).  Ouch. The Rules 60 day Rule:  Whether you’re rolling over a company retirement account or IRA assets, you have a maximum of 60 days in which to complete the rollover to another IRA if the distribution is made directly to you, instead of the rollover IRA account.  Failure to complete the rollover in this time frame will result in taxes and possibly penalties.

 In most cases, the transfers can be electronically sent directly to the new firm or Fund Company.  Or we may leave one job for a new one or simply retire.  It’s inevitable, at some point or another we might ditch one provider, advisor or fund company for another. If you don’t know the rules of the game, it’s easy to get fouled out, and when it comes to IRA Rollovers, those fouls can cost you big money if you are not careful. The bottom line is this, when it comes to rollovers, you better know your stuff–or at least have the proper oversight with a competent advisor.  Company 401k direct rollovers allow you to transfer your retirement funds directly over to your new employer’s retirement plan or into a rollover IRA plan as a trustee to trustee transfer.

Further information is good for read:

1. Fidelity 401k rollover – So before you roll …. Transfer is not always as Roll Over can be considered to perform an unlimited number of times, and are not...
2. Therefore, before drawing …. Rollover IRA is a special type of IRA that are used to make payments from qualified employer plan is obtained...
3. What You Should Know About A 401k A401k is a good place to start in planning for your future retirement, no matter how far away you may...
4. Rollover Assistance With the advent of, fidelity 401k, the 401k, SIMPLE, SEP and 403b as retirement plans, many people have multiple accounts...
5. Is Your 401k Safe? When you contribute to your 401k, assume that your employer is actually transmitting the money you've invested in mutual funds...