Direct vs Indirect Rollover: What's the Difference and What Are the Rules

Direct vs. Indirect Rollover: What’s the Difference & What Are the Rules?


Written by John Rothans

Oct 8, 2021

An IRA rollover allows you to consolidate former employer-sponsored retirement plans and potentially access a greater variety of asset options. When you’re weighing a rollover of retirement funds, there are two types to consider: direct and indirect. Follow along as we explore the difference between direct and indirect rollovers, the rules for each, and how precious metals can play a part.

What’s the Difference Between a Direct and an Indirect Rollover?

The difference between a direct rollover and an indirect rollover is pretty simple.

When you carry out a direct rollover, you shift money from one account to another. You can move the funds from one retirement plan, such as a 401(k), to a different retirement plan. Or you can move the assets from a 401(k) to an IRA.

An indirect rollover is a more involved process. With an indirect rollover, you get a check that you must deposit in an approved retirement plan within 60 days of the money being withdrawn. You could be hit with extra taxes and penalties if you deposit the money outside the 60-day window because the withdrawal would then be treated as an early distribution.

What Are the Rules for a Direct Rollover?

When you do a direct rollover, the administrator of your retirement plan, such as a 401(k), sends your retirement assets directly to another retirement plan or an IRA. This can happen electronically or through a check payable to the administrator of the retirement plan or IRA. Typically, you don’t control the assets during this transfer.

No taxes are withheld in a direct rollover. And you don’t need to follow a timetable in terms of how long it takes to carry out a direct rollover.

In some cases, the IRS limits rollovers to one every 12 months. However, according to TaxAudit.com, this rule does not apply to:

  • Conversions to a Roth IRA
  • Transfers directly from one asset administrator to another
  • Direct IRA-to-IRA rollovers

What Are the Rules for an Indirect Rollover?

When you use the option to do an indirect rollover, you receive the assets from your retirement plan, usually in the form of a check. Financial institutions often withhold taxes (normally 20%) when you execute an indirect rollover, then the money is returned as a tax credit for the year when the rollover process is completed. On that basis alone, experts recommend doing a direct rollover rather than an indirect rollover.

If you fail to deposit money from a retirement plan into an IRA within 60 days, you’ll face a tax penalty on top of the normal tax withholding.

The IRS limits indirect rollovers to one every 12 months.

IRA Rollovers and Precious Metals

If you’re pondering a direct or indirect rollover, you might consider rolling over some of your retirement funds into what’s known as a gold IRA, or precious metals IRA. A gold IRA can be either a traditional IRA or Roth IRA.

You can start a gold IRA by opening a self-directed IRA that lets you own gold, silver, platinum, or palladium (bars or coins) as part of your retirement portfolio. A self-directed IRA can also hold other alternative assets, like real estate. You can set up a self-directed IRA through an IRS-approved custodian, such as a bank, credit union, or trust company.

The custodian will buy precious metals on your behalf. While you do own the precious metals in your IRA, you don’t take possession of them until you’re eligible to take distributions. Instead, the bars and coins are stored at an IRS-endorsed depository.

Rolling over part of your IRA into physical gold could help alleviate some uncertainty you might feel about more traditional paper-based assets, like stocks. It could also open up new avenues for diversification. Get started with help from a U.S. Money Reserve IRA Account Executive and request our free Precious Metals IRA Information Kit today.


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