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How direct and indirect rollovers work?
How direct and indirect rollovers work?
Updated over a week ago

If you want to move your money from one retirement account to another, there are two general ways to do so: a direct rollover and an indirect rollover.

Understanding the difference is crucial because each of the methods have different pros and cons as well as vastly different withholding and possible taxation implications.

You can learn about which distributions are eligible for rollover here.

Direct rollover

In general, a direct rollover moves money from one retirement account directly to another retirement account. The funds can typically be delivered in several ways:

  • As an ACH or wire direct to the receiving financial organization

  • As a check mailed directly to the receiving financial organization for your benefit

  • As a check mailed to you but made out to the new financial organization for the benefit of your retirement account

If the check is mailed to you, there is no IRS mandated deadline to send it to the new financial organization because you do not have “constructive receipt” of the funds from the retirement account (meaning you cannot deposit it in your personal account). However, most checks have a stale date (typically six months) after which they can no longer be cashed. If you hold on to the check past this deadline, you will need to contact the issuing financial organization to reissue the check.


Because you are moving your funds from one retirement account directly to another, there are no requirements for federal or state tax withholding. The full amount of the distribution will be included in the ACH, wire or check.


There are no limits to the number of direct rollovers you can complete in a calendar year.

When to consider a direct rollover

A direct rollover can be beneficial in the following circumstances:

  • You know you want to keep your funds in a retirement account.

  • You’d like a streamlined process to send your money from one financial institution to another.

  • You want to avoid the risk of triggering a penalty or taxable event.

  • You want to avoid any mandatory withholding on the distribution.

Indirect rollover

Generally, when you take a cash distribution (or withdrawal) from your retirement account, your funds will be paid directly to you via check, ACH or wire transfer.

Provided the distribution is eligible for a rollover, you can choose to send all or some of those funds (including any withholding) to another retirement account as an indirect rollover.

However, to be eligible for an indirect rollover, you must complete the process within 60 days. If your distribution is not rolled over within this timeframe, then any pre-tax amounts will be included in your taxable income for the year and may also be subject to early withdrawal penalties unless you meet one of the penalty exemptions.

The 60-day time frame starts from the day after 1) you receive the check (for distributions paid by check) or 2) the amount is deposited into your account (for ACH or wire transfers). This time frame is typically strictly enforced, so you don’t want to miss it.

An exception to the 60-day rule: qualified plan loan offsets

One main exception to the 60-day rollover rule is a qualified plan loan offset (QPLO). In order for a plan loan offset to be considered a QPLO:

  • The loan was offset because either you left employment with the company sponsoring the plan or the plan terminated

  • Your outstanding plan loan was in good standing (you were up to date on payments) on your termination from service date/plan termination date

  • The loan offset occurred within 12 months of your termination from service date/plan termination date

If you have a QPLO, you have an extended time frame to complete an indirect rollover. Instead of 60 days, you have until your tax return due date (plus any requested extensions) for the year the offset occurred.


If the amount you want to include in an indirect rollover came from an eligible retirement plan (e.g., a 401(k), 403(b), defined benefit or Thrift Savings Plan), the distributing plan is required to withhold at least 20% of the distribution as federal income tax along with any required state withholding.

If the amount comes from an IRA (traditional, SEP or SIMPLE), you are given the option to waive this withholding. If withholding was applied to your distribution, you are responsible for depositing the entire amount, including any taxes withheld, into your retirement account by the deadline to avoid a taxable event. Because the withholding amount was sent to the IRS, the distributing plan will not be able to return that money in the case you choose to complete an indirect rollover. This means that if you want to indirectly rollover your complete distribution you will need to make up the difference out of your own pocket.

For example, if you take a $10,000 cash distribution from your 401(k) plan and live in a state that does not require additional withholding for state income taxes, and you do not choose to have any additional withheld above the mandatory 20% federal tax, you will receive a check for $8,000. If you decide that you want to keep the $10,000 for retirement savings, you have 60 days to deposit the full amount in a retirement plan or IRA. If you are unable to make up the $2,000 withholding, only $8,000 will be considered a rollover and $2,000 will be included in your income for the year and possibly subject to the early withdrawal penalty tax. The $2,000 that was withheld will be included in a prepayment of federal tax when you file your taxes the same as the amount withheld from you pay each paycheck.


While there is no limit to the number of indirect rollovers you can complete between eligible retirement plans or between IRAs and eligible retirement plans, you are limited to a single IRA-to-IRA indirect rollover in any 12-month period.

For the purpose of this rule, all IRAs owned by you are counted together and and include any traditional, Roth, SEP or SIMPLE IRA. This means if you take a distribution from your SEP IRA and indirectly rollover that amount to your traditional IRA, you cannot complete another IRA-to-IRA indirect rollover for a full 12 months.

There are a couple of exemptions to this rule:

  • Conversion from traditional, SEP or SIMPLE IRAs to Roth IRAs do not count toward this limit.

  • If you take multiple distributions within a 60-day period, you can aggregate them all into one indirect rollover contribution.

  • If the distribution was due to a failure of the financial organization holding the IRA.

When to consider an indirect rollover

An indirect rollover can be beneficial in the following circumstances:

  • You want access to all or part of the funds as a short-term loan for yourself. Since you have 60 days to repay it, you can essentially use those assets during that window without interest.

  • You intend to keep the funds, but within the 60 days you decide to put the money back into a retirement account.

  • You accidentally requested the distribution be made out to yourself instead of the other financial institution.

Rollovers to Guideline

Looking to rollover other retirement funds to Guideline? Learn how here.

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