Difference Between a Rollover and a Transfer
When it comes to rollovers or transfers between 401k accounts and IRA accounts, one word makes a lot of difference. So, what exactly is the difference between a rollover and a transfer? A 401k rollover requires that 20 percent of the amount being rolled over be withheld for taxes, even though the IRS still requires the account owner to deposit 100 percent of the amount within 60 days to avoid taxes and penalties. This means that the account owner has to come up with that 20% on his own, and be sure to deposit it with the 80% proceeds he actually receives. A 401k transfer requires no withholding and moves the funds tax-free. As a result, a 401k transfer is better than a 401k rollover in most cases. Likewise, an IRA rollover gives the account owner 60 days to deposit any rolled over funds into a new IRA account. IRS rules limit each taxpayer to only one rollover per year. An IRA transfer moves the money directly to a new qualified retirement plan account with no delays and with no one per year limits. While many of these rollovers are handled electronically, some are done by a check made out …