The Indirect Rollover

• You have two ways to perform the rollover: through a direct rollover or an indirect rollover. The direct rollover is a trustee-to-trustee transfer and poses no distribution complication. The indirect rollover is where asset movement becomes much more complicated. In the indirect rollover, assets are liquidated from one qualified retirement plan, and a distribution check is sent to you. To complete the rollover, you must deposit the money into another qualified retirement plan.
  
  

Time Frame

• You must complete the rollover within 60 days to comply with IRS regulations. The 60 days start the day you get the rollover check. Keep in mind that the check itself is deemed as a distribution until the money is re-deposited into another retirement account. If you don't meet the 60-day deadline, the entire rollover value is considered a distribution. If the funds are traditional assets, the entire IRA is added to income. If you aren't yet 59 1/2, expect another 10 percent in IRS penalties added to the tax bill. Roth early distributions add earnings to income and add 10 percent too.
  
  

Unexpected Withholding

• Though it may seem like a simple process to take the check and deposit it, the IRS complicates things just a bit more. The check you receive is not the entire rollover amount; Uncle Sam has kept some just in case you decide to take the check and spend it. The check you receive is missing 20 percent as a result. When you deposit the check, you have to have the missing 20 percent added. It works like this: an indirect rollover of $100,000 sends you a check for $80,000. You have 60 days to take the check plus $20,000 and put it into a new IRA. If you don't, the 20 percent is a taxable distribution. After completing the rollover, you will get the withheld portion back when filing personal tax returns.
  
  

Direct Rollover Option

• With the potential problems created through indirect rollovers, a direct rollover is easier for most. Performing a direct rollover requires first opening a rollover account that will receive the funds. Provide the retirement plan provider sending the money with the rollover account information and specifically request a direct rollover. Money never comes to you, and can't accidentally become a distribution.