What is a Direct Rollover?
If a retirement plan allows an individual to withdraw money when changing jobs or retiring, it must give that person the option to have the administrator of the plan pay all or part of the money directly to an IRA. If the individual chooses the direct rollover option, no tax is withheld from any part of the designated distribution that is directly paid to the trustee of the IRA. Will participants be notified of their right to have their retirement plan money rolled over into an IRA? Yes, before making a rollover distribution, the administrator of a retirement plan must provide participants with a written explanation of their right to choose whether to withdraw the money or transfer it to a Rollover IRA. The plan administrator must provide participants with this written explanation no earlier than 90 days and no later than 30 days before the distribution is made. See the IRS Publication 590 to find out what is required in the notice. Are there other kinds of Rollover IRAs? Yes, rollover
A direct rollover is a distribution from a qualified retirement plan such as a pension, profit-sharing, Keogh (HR-10), or 403(b) Tax-Sheltered Annuity program, which is sent on your behalf directly to a new trustee/custodian. A direct IRA rollover can be accomplished by asking the administrator of your qualified plan to make the distribution directly to the new trustee/custodian. Only one direct rollover from an IRA account to another IRA account is permitted in any one-year period. Values distributed from a qualified retirement plan, which are not directly rolled over into an eligible qualified plan or IRA are subject to a 20% federal withholding tax.
A Direct Rollover occurs when an individual elects to have the plan administrator of an employer sponsored retirement plan (such as profit sharing, money purchase, defined benefit, etc.) move part or all of his/her account in directly to an IRA.. A Direct Rollover can also be made from a 403(a) or (b) annuity.
Through a direct rollover, you never actually take possession of your retirement assets. Instead, you can request that the Trustee or Plan Administrator deliver your distribution to either the financial provider where your Rollover IRA is held or another eligible retirement plan. Since you never directly take possession of the assets, there is no mandatory 20% federal tax withholding for this type of rollover. It is recommended that you check with your tax advisor to determine the best solution for your individual situation.
Direct rollovers are transactions that move the assets of one type of retirement or pension plan to a similar qualified pension plan. By going with one simple transaction to accomplish this task, it is possible to avoid the necessity of paying taxes on any funds accumulated in the originating plan, as there was not actually any payout made to the individual covered under the terms of the plan. In fact, the individual has to do very little to execute a direct rollover, other than authorize the transfer from one plan to another. One common example of a direct rollover occurs when an individual chooses to leave a current employer in order to take a position with a different employer. Any retirement funds accumulated under the plan operated by the former employer must be disbursed with a specified period of time. The former employee essentially has two options: receive a cash payout of any funds in the plan or roll the balance over to a new retirement plan. If the decision is to receive a
