Direct rollover

(redirected from Direct Rollovers)

Direct rollover

Movement of tax-deferred retirement plan money from one qualified plan or custodian to another. No immediate tax liabilities or penalties are incurred, but there is an IRS reporting requirement.

Direct Rollover

The transfer of funds from an IRA to another qualified retirement account owned by the same person or vice versa. Rollovers happen most often when an employee changes jobs and therefore IRA accounts. A direct rollover goes directly from one account to the other; it is not distributed to the account holder at any point. A direct rollover may only be done once per year for each account. One must report a direct rollover to the IRS, but it is not taxable.
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After-tax portions of a distribution must first be allocated to amounts not rolled over, then to 60-day rollovers and only after that to direct rollovers.
To make this selection, the recipient must inform the plan administrator before the direct rollovers are made.
Problems with direct rollovers of participant distribution
The defined benefit plan allows the employee to begin receiving benefits as soon as employment is terminated, and accepts direct rollovers only if the employee has begun to receive benefits.
A plan administrator may permit a participant to divide his distribution into separate distributions to be paid to two or more eligible retirement plans in direct rollovers but is not required to do so.
Beginning in 2008, direct rollovers (conversions) to Roth IRAs
Withholding not required in direct rollover: Direct rollovers to Roth IRAs, like other direct rollovers, are not subject to the 20% mandatory tax withholding requirements, even though the rollover results in taxable income to the distributee.
The rules are different for 60-day rollovers and for direct rollovers, and they are more favorable for direct rollovers.
During 2006 and 2007, the provision allows donors age 701/2 and older to make direct rollovers to a qualified charity of up to $100,000 without affecting the donor's taxable income.
If a plan does offer direct rollovers to nonspouse beneficiaries of some, but not all, participants, such rollovers must be offered on a nondiscriminatory basis.
The Service has supplemented the instructions to Form 1099-R for reporting direct rollovers from qualified plans or tax-sheltered annuities.