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Retirement Accounts: Transfer vs. Rollover

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Author's Note: Retirement Accounts: Transfer vs. Rollover

Researching this article made me appreciate the importance of semantics -- knowing the right definition for the right word. I think that when most of us hear the phrase "401(k) rollover," we assume that it's a direct transfer of funds from one retirement account to another. But that's only true of direct rollovers. If you lose a job and tell your 401(k) plan administrator that you want to "roll over" your money to an IRA, he or she is required to provide information about the tax implications of a direct vs. indirect rollover, but that doesn't mean that the information will be clear or that you'll fully grasp the difference. And when you get that huge check in the mail, you might not know about 20 percent withholdings and 60 day limits and the other IRS mumbo jumbo that could land you in deep financial trouble. The difference between direct rollover, indirect rollover and transfer might seem like semantics, but it's really a big deal.

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Sources

  • Brandon, Emily. "10 Important Ages for Retirement Planning." US News & World Report. Feb. 21, 2012 (Feb. 14, 2013) http://money.usnews.com/money/retirement/articles/2012/02/21/10-important-ages-for-retirement-planning
  • Brandon, Emily. "Smart Strategies for 401(k) Rollovers to IRAs." US News & World Report. June 4, 2012 (Feb. 14, 2013) http://money.usnews.com/money/retirement/articles/2012/06/04/smart-strategies-for-401k-rollovers-to-iras?page=2
  • Charles Schwab. "Rollover IRA FAQs" (Feb. 20, 2013) http://www.schwab.com/public/schwab/investing/accounts_products/accounts/ira/rollover_ira/faq
  • Fidelity. "What to do with an old 401(k)." Jan. 17, 2013 (Feb. 15, 2013) https://www.fidelity.com/viewpoints/401k-options
  • Internal Revenue Service. "Instructions for Forms 1099-R and 5498" (Feb. 20, 2013) http://www.irs.gov/pub/irs-pdf/i1099r.pdf
  • Internal Revenue Service. "Retirement Topics – Rollovers of Retirement Plan Distributions" (Feb. 20, 2013) http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics---Rollovers-of-Retirement-Plan-Distributions
  • Internal Revenue Service. "Transfers." Instructions for Forms 1099-R and 5498 (Feb. 14, 2013) http://www.irs.gov/instructions/i1099r/ar02.html#d0e654
  • Internal Revenue Service. "Retirement Plans FAQs Regarding Hardship Distributions" (Feb. 15, 2013) http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Hardship-Distributions
  • Lewis, Roy. "IRA Rollovers vs. Transfers, Part II." The Motley Fool (Feb. 13, 2013) http://www.fool.com/school/taxes/1999/taxes990625.htm

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