Rollover

Rollover: The Smartest Way to Move Retirement Funds Tax-Free

A rollover allows you to transfer money from a qualified retirement plan (such as a 401(k)) or IRA into another IRA while maintaining the tax-deferred growth of your funds. When done correctly, a rollover lets your investments continue growing tax-free until withdrawal. But if mishandled, it can trigger unexpected taxes and penalties.

Why Rollover to an IRA?

• Preserve Tax Deferral: Funds moved into an IRA remain tax-deferred until distributed.

• Greater Investment Control: An IRA offers more investment choices than an employer-sponsored plan.

• Partial Rollover Option: You may keep some funds for immediate use while rolling over the rest tax-free.

  
  

⚠️ Important: If you retire before age 55 and fail to roll over a qualified plan distribution, you may face a 10% early withdrawal penalty [IRC §72(t)].

Direct Rollover Is the Best Option

There are two ways to roll over a qualified retirement plan distribution into an IRA:

1. Direct Transfer (Trustee-to-Trustee)

2. Traditional Rollover (you receive a check and must deposit it within 60 days)

Choosing a Direct Rollover ensures:

• No mandatory 20% federal withholding

• No need to worry about the 60-day rule

• Lower risk of IRS disputes

👉 Always request a Direct Transfer for the safest tax outcome.

Example: The Risk of a Mistaken Rollover

• At age 52, you leave your job with a $150,000 401(k) balance.

• Instead of a Direct Rollover, you receive a check in your name for $120,000 (20% mandatory withholding = $30,000).

• To complete a full rollover, you must come up with the missing $30,000 within 60 days.

If you can’t:

• The $30,000 becomes taxable income.

• Because you are under 55, a 10% early withdrawal penalty ($3,000) also applies.

👉 Had you done a Direct Rollover, you could have avoided all of these issues.

The One-Rollover-Per-Year Rule

• A traditional IRA-to-IRA rollover is allowed only once in a 12-month period.

• Exceeding this limit makes additional rollovers taxable and potentially subject to a 10% penalty.

• Fortunately, Direct Transfers are not counted toward this rule and can be done multiple times.

✅ Rollovers from a qualified plan (e.g., 401(k) to IRA) are also exempt from the one-rollover-per-year rule.

Conclusion

A rollover may seem like a simple process, but the IRS has strict rules—and many taxpayers have faced costly mistakes.

• Always use a Direct Rollover (Trustee-to-Trustee transfer).

• Understand the 60-day rule and the one-rollover-per-year rule.

👉 The safest way to preserve your retirement savings and avoid tax traps is to choose a Direct Rollover every time