Direct rollover

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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New IRAs may also be opened through a direct rollover from an employer-sponsored retirement plan.
402A-1, Q&A-5(a) provides that "any amount paid in a direct rollover is treated as a separate distribution from any amount paid directly to the employee.
Thus same-sex spouses are entitled to survivor annuity protection in pension plans, automatic account balance death benefits in 401(k) and 403(b) plans and have direct rollover treatment on a spouse's death.
If your client's rollover form from a previous carrier asks what type of distribution this is, you want to be sure to choose a Direct Rollover.
A taxpayer may roll over all or part of a distribution from an eligible retirement plan to a Roth IRA (a conversion transaction) either by a direct rollover to the Roth IRA or by rolling over the amount received within 60 days.
This would also be the case for a direct rollover to a traditional IRA account-all distributions from the IRA would be fully taxable as income.
Generally, distributions from an employer plan can be rolled over tax-free into another employer plan or IRA by contributing the amount of the distribution to the other plan or IRA within 60 days of the distribution, or by a direct rollover by the plan to the other plan or IRA.
There was some confusion about whether a plan had to offer a non-spouse direct rollover to an inherited IRA.
With that as background, the short answer to your question is that currently a direct rollover of a 401(k) into a Roth account is not permitted--it's first necessary to transfer the funds to a traditional IRA and then convert that into a Roth.
The direct rollover may not be particularly effective as a short-term strategy for those who itemize their deductions, since the value of their deductions is already taken into account when they file their taxes.
Under the Act, a plan administrator is required to make a direct rollover of any involuntary distribution of between $1,000 and $5,000 (which is otherwise an eligible rollover distribution) to an IRA established by the administrator, unless the participant affirmatively elects to either roll over the distribution to a different IRA or a qualified plan or to receive it directly.
Distribution Codes G (for direct rollover to an IRA) and H (for direct rollover to a qualified plan or tax-sheltered annuity) are used to report direct rollover distributions.