A rollover occurs when you withdraw cash or assets from one eligible retirement plan and deposit all or part of it into another eligible retirement plan within 60 days. This transaction is not taxable unless rolling into a Roth IRA or designated Roth account, but it must be reported on your federal tax return. Any portion not rolled over is taxable in the year of distribution.
Ineligible Distributions
Certain distributions cannot be rolled over, including:
Series of substantially equal periodic payments for life, joint life, or for 10+ years.
Required minimum distributions (RMDs).
Hardship distributions from an employer retirement plan.
Corrective distributions of excess contributions or deferrals, plus related earnings.
Loans treated as distributions due to non-compliance or default (unless offset by accrued benefits).
Dividends paid on employer securities.
Cost of life insurance coverage.
Rollover of Nontaxable Amounts
You can roll over nontaxable distributions (such as after-tax contributions) to:
Another qualified retirement plan (401(k) or 403(b)) that separately tracks taxable and nontaxable amounts.
A traditional or Roth IRA.
Transfers must be made as direct rollovers to properly account for taxable and nontaxable portions.
Timeframe to Complete a Rollover
You have 60 days from the date of distribution to complete a rollover.
If you have a qualified plan loan offset, you have until the tax filing due date (plus extensions) for the year of offset.
If you miss the 60-day deadline, you may qualify for a waiver by self-certifying under Revenue Procedures 2016-47 and 2020-46.
The 60-day period may be extended for those affected by a federally declared disaster or significant fire.
If repaying a qualified disaster distribution, you generally have 3 years to complete repayment.
Withholding Rules
If a taxable rollover distribution is paid directly to you, the plan must withhold 20% for federal income tax.
To defer tax on the full amount, you must replace the withheld amount with funds from other sources.
You can elect higher withholding by providing Form W-4R to the payer.
Direct Rollover Option
To avoid mandatory withholding, you can request a direct rollover, in which the funds are transferred directly to another eligible retirement plan or IRA. In this case, no 20% withholding applies.
For more details, refer to Publication 575, Pension and Annuity Income.