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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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This would create a tax liability when doing a direct rollover. The IRS finally acquiesced with IRS Notice 2014-54, which allows taxpayers to proactively allocate pre-tax amounts to a traditional IRA and after-tax amounts to a Roth IRA.
Like spouse beneficiaries, you can also roll over ("convert") non-Roth distributions from an employer plan into an inherited Roth IRA (however, you must do so in a direct rollover).
A direct rollover may be in the form of a trustee-to-trustee transfer accomplished through a wire transfer or a check made payable to the trustee.
For taxpayers making a disbursement partly to themselves and partly as a direct rollover to a Roth IRA or another designated Roth account, the pretax amount of the distribution is allocated first to the direct rollover.
Either leave it where it is or do a direct rollover."
If it's a direct rollover, there's no need to withhold taxes.
On September 18, 2014, the IRS released Notice 2014-54 ("Guidance on Allocation of After-Tax Amounts to Rollovers"), which definitively authorizes clients to complete a direct rollover of their pre-tax plan funds to a traditional IRA while simultaneously allowing them to complete tax-free Roth IRA conversions of their after-tax plan funds.
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.
But your employer must also allow you to make a direct rollover to an IRA or to another employer's 401(k) plan.
Revenue Ruling 2012-4 describes whether a qualified defined benefit pension plan (that accepts a direct rollover of an eligible rollover distribution from a qualified defined contribution plan maintained by the same employer) satisfies SS411 and SS415 of the IRC in a case in which the defined benefit plan provides an annuity resulting from the direct rollover.
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. This ensures that the funds are made payable to and go directly into their new IRA account with you.
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.