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What are the differences between a transfer and a rollover?

April 26, 2017differences rollover transfer

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What are the differences between a transfer and a rollover?

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A transfer occurs when IRA assets are moved directly from one financial institution to another without the IRA owner taking possession of his/her assets. By executing a transfer, IRA owners avoid possible tax liabilities that might occur by taking possession of their funds personally. Unlike rollovers, there is no set limit to the number of transfers that can be executed in a year. A rollover occurs when an individual requests a distribution from an IRA or a Qualified Retirement Plan and then “rolls” the assets into an IRA. There are three types of rollovers: (i.) an IRA rollover; (ii.) a Qualified Retirement Plan Rollover, and (iii.) a Qualified Retirement Plan Direct Rollover. Under federal tax law, each IRA owner is limited to one IRA Rollover in a 12-month period. On the other hand, Qualified Retirement Plan Direct Rollovers are not treated as rollovers subject to this 12-month rollover rule.