Rollover

A rollover is the process of moving money from one retirement account to another without paying taxes or penalties on the transferred funds. This typically happens when you change jobs, retire, or want to consolidate multiple retirement accounts into one place.

There are two main types of rollovers:

• Direct rollover: The money moves straight from one account to another. You never touch the funds. This is generally the simpler and safer option because there is no risk of accidentally triggering taxes.
• Indirect rollover: The money is paid out to you first, and then you deposit it into another qualifying retirement account. You have 60 days to complete the deposit. If you miss that window, the IRS may treat the full amount as taxable income and apply early withdrawal penalties if you are under age 59½.

A common example: An employee leaves a job and has a 401(k) with a former employer. They choose to roll that balance into an Individual Retirement Account (IRA). With a direct rollover, the 401(k) plan sends the funds directly to the IRA provider. The account owner avoids taxes and keeps their retirement savings growing on a tax-deferred basis.

One important rule to know is the IRA one-rollover-per-year limit. The IRS generally allows only one indirect rollover between IRA accounts within any 12-month period. Direct rollovers between employer plans and IRAs do not count toward this limit.

In 2026, contribution limits are separate from rollover amounts. A rollover does not count as a new contribution, so there is no cap on how large a rollover can be. This makes rollovers a useful tool for consolidating old workplace plans into a single IRA regardless of balance size.

Key things to keep in mind with rollovers:

• Always verify the receiving account type is compatible with the sending account type to avoid tax issues.
• Some employer plans withhold 20% on indirect rollovers, which must be made up out of pocket to avoid taxes on that withheld portion.
• Roth accounts and traditional accounts have different tax rules when rolling over funds between account types.

RetireGrader is not a financial advisor or fiduciary. Consult a qualified tax or financial professional before making rollover decisions.