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Independent life insurance and retirement income agency serving Salinas and Monterey County.
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The short answer: a transfer moves money directly between two institutions of the same account type, with no withholding, no deadline and no annual limit. A rollover is broader: it covers moving money between different kinds of retirement account, and if the money passes through your hands first it brings 20% withholding from an employer plan, a 60-day deadline, and, for IRA-to-IRA moves, a once-per-12-months limit. Ask for the money to go directly to the receiving institution and almost every trap on this page disappears.
| What it is | What moves | Withholding | Deadline | Frequency limit |
|---|---|---|---|---|
| Trustee-to-trustee transfer | IRA to IRA, or plan to plan, directly between custodians | None | None | None |
| Direct rollover | Employer plan to IRA, or to another employer plan, paid to the receiving institution | None | None | None |
| Indirect (60-day) rollover | Paid to you, then redeposited by you | 20% from an employer plan | 60 days from receipt | One per 12 months for IRA-to-IRA |
The IRS sets these out on its page covering rollovers of retirement plan and IRA distributions. Notice that the first two rows have no deadline and no limit. The entire risk lives in the third row, and the third row is optional.
When an employer plan pays an eligible rollover distribution to you rather than to another institution, it must withhold 20% for federal income tax. To complete a full rollover you then have to deposit 100% of the original amount within 60 days, which means finding the withheld 20% from other savings and waiting until you file to get it back. If you deposit only what you received, the withheld portion is treated as a distribution: taxable, and subject to the federal 10% additional tax if you are under 59½ and no exception applies. In California there is a further 2½% additional tax on the taxable part of an early distribution. Our withdrawal tax calculator puts numbers on that.
You may make only one 60-day rollover from one IRA to another in any 12-month period, counted across all of your IRAs rather than per account. A second one inside the window is a taxable distribution, and if it lands in an IRA it can also be an excess contribution with its own penalty until corrected. The limit does not apply to trustee-to-trustee transfers between IRAs, to rollovers from an employer plan into an IRA, to rollovers from an IRA into an employer plan, or to Roth conversions. In other words, it only ever catches the method you should not be using.
Not every account can go to every other account. In broad terms: a traditional 401(k), 403(b) or governmental 457(b) can generally move to a traditional IRA or to another employer plan that accepts it; a traditional IRA can generally move to another traditional IRA or into an employer plan that accepts incoming rollovers; Roth balances move to Roth accounts; and moving pre-tax money into a Roth is a conversion, which is deliberately taxable in the year you do it. Two cautions specific to this county: money that originated in a governmental 457(b) loses its exemption from the federal 10% additional tax once it lands in an IRA, and an annuity-based 403(b) can charge a surrender fee on the way out even though the IRS does not tax the move. Those are covered on our 457(b) and 403(b) pages.
It is not necessarily a disaster. If the cheque is payable to the receiving custodian for your benefit, it is still a direct rollover and you can simply forward it. If it is payable to you personally, the 60-day clock started the day you received it, and you need to deposit the full pre-withholding amount into an eligible account before it expires. Note the date, do it immediately rather than at day 55, and keep the paperwork. The IRS can waive the deadline in limited circumstances, including a self-certification procedure for certain qualifying reasons, but relying on that is not a plan.
Related: direct versus indirect rollover for the mechanics in more detail, the rollover rules for the deadlines and limits in one place, and IRA rollover options for the decision itself rather than the method.
A transfer moves money directly between two custodians holding the same type of account: no withholding, no deadline, no annual limit. A rollover is the broader term and, when the money is paid to you first, brings 20% withholding from an employer plan, a 60-day deadline and a once-per-12-months limit for IRA-to-IRA moves.
They are close but not identical. A trustee-to-trustee transfer is usually used for moves between the same account type, and a direct rollover for moves between different types, such as a 401(k) to an IRA. Neither is withheld on and neither has a deadline, which is what matters in practice.
Trustee-to-trustee transfers are not limited. The once-per-12-months rule applies only to 60-day rollovers from one IRA to another, counted across all your IRAs together.
Because the distribution was paid to you rather than directly to the receiving institution. Federal law requires 20% withholding on an eligible rollover distribution paid to the participant. A direct rollover avoids it entirely.
The amount is generally treated as a taxable distribution, plus the federal 10% additional tax if you are under 59½ and no exception applies, and in California a further 2½%. The IRS can waive the deadline in limited circumstances, but the reliable answer is to use a direct move so no deadline exists.
No. Moving money directly between custodians of the same account type is not a taxable event and is not reported as income. What can cost money is the sending institution's own surrender charge, if the account you are leaving is an annuity or a CD inside its term.
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Schedule a CallReviewed by Roberto Morales, California Insurance License #0G97165. Next Wave Options is licensed for life and annuity products only and does not provide investment, tax or legal advice.
