The Right Moves - How to Move Retirement Funds
The year 2025 has been a turbulent time for the economy. Whether due to job loss or seeking better investment opportunities in volatile markets, the result is that more and more retirement account funds are on the move.
When retirement funds are in motion, there are rules that must be followed. Retirement account owners must be very careful to be sure that their funds are moved correctly. Otherwise, there could be taxes, penalties and the loss of hard-earned retirement savings.
The best way to ensure safe passage of retirement funds is to move the retirement funds directly from one retirement account to another.
Employer Plan Moves
From work plans, like a 401(k), this means doing a direct rollover to another plan or to an IRA.Instead of opting to receive the funds, the participant instructs the plan to send the funds directly to the receiving retirement account.
A check made payable to the receiving plan administrator or IRA custodian satisfies this requirement, even if it is sent to the plan participant. Money can also be moved this way from an IRA to an employer plan via “reverse rollover” if the plan allows.
IRA Moves
For IRA funds, the best way to move money is by doing a direct transfer. The IRA custodian would send the funds directly to the other IRA without the account owner taking receipt of the funds. (As with a direct rollover from a plan, a check from an IRA payable to the receiving custodian and sent to the IRA owner would qualify as a direct transfer.)
Whenever Possible – Avoid 60-Day Rollovers!
With a 60-day rollover, money is distributed to the account owner and subsequently deposited to an IRA within 60 days. A 60-day rollover is one way that funds can be moved from one retirement account to another, but it should be avoided whenever possible. This is because 60-day rollovers come with a lot of potential problems and risks.
For both plans and IRAs, doing a direct rollover or transfer instead of a 60-day rollover avoids the risk of missing the 60-day rollover deadline. Missing this deadline by even one day could mean the entire distribution would be taxable and ineligible to ever be deposited back into a retirement account.
For plan distributions, a direct rollover also avoids the mandatory 20% withholding rule that applies when rollover-eligible plan funds are paid to the plan participant. This rule can create headaches for participants who are looking to roll over the full amount of the distribution within 60 days because a portion will be lost to required withholding.
For IRAs, a transfer between IRAs eliminates concerns about the complicated once-per-year IRA rollover rule. This rule is tricky, and the IRS has no discretion to waive it. A direct transfer also avoids the hassle of the IRA owner having to report the move on her tax return for the year.
By Sarah Brenner, JD
Director of Retirement Education
Ed Slott and Company, LLC
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Christian Cordoba, founder of California Retirement Advisors, has been a member of Ed Slott's Master Elite IRA Advisor Group since 2007.