There are two types of rollovers, a “direct rollover” and an “indirect rollover”.
A “direct rollover” is the movement of retirement funds directly from a previous employer plan to a traditional IRA. A direct rollover is initiated by the plan participant(employee) and is typically initiated by completing the employer’s “direct rollover” form. The current administrator/employer is not required to withhold federal taxes on direct rollovers to a qualified IRA.
An “indirect rollover”, in contrast, is a distribution to you of assets from one retirement plan that you then contribute to an IRA. To avoid taxes on the distribution, the funds must be deposited back into an IRA within 60 days of receipt of the distribution. If the distribution from a qualified plan is made directly to you, the payer must withhold 20 percent for taxes.
Whenever possible, we recommend using a direct rollover, as it avoids the tax withholding and eliminates timing risks of failing to redeposit the funds.