Direct Transfers vs. 60-Day Rollovers – Which is Better?

At some point in your life, you may want to transfer money from a retirement plan to an IRA. There are two well-known ways of doing this: a direct transfer or a 60-day rollover. Chances are, your advisor will suggest a direct transfer. It’s the simplest way to move funds between two accounts.  However, if you’re still not convinced, here’s the full rundown:


Direct Transfer vs. 60-day Rollovers

  • Direct Transfer – A direct transfer is sometimes called a “direct rollover”, depending on the context. The term “transfer” is used in the tax code when referring to IRAs, while “rollover” is used for other qualified plans. Either way, we’re always talking about distributions that are payable to another tax-deferred account, but never to the account holder. There are two ways to distribute your funds into another account:
    1. ACH/Wire Transfer – This is generally the preferred method since the account holder never touches the funds.
    2. Check Payment – In this case, the check is made payable to the recipient account and is handled through a custodian.
  • 60-day Rollovers — Often referred to as an “indirect transfer,” a 60-day rollover is when a distribution is payable to an individual to be redeposited into an IRA or other retirement plans within 60 days. Partial rollovers are also allowed.

Consult with your financial advisor which is the best option for you and your situation.


Benefits of a Direct Transfer

Now that you understand the difference between the two ways of transferring assets from a retirement plan to an IRA, here are some benefits of choosing a direct transfer:

  • Simplicity – You can’t really get much simpler than a direct transfer. Plus, with an ACH/wire transfer, there is less room for error.
  • Once-per-year Rollover Rule – Direct transfers are exempt from this rule, which means you can make as many distributions from or to qualified retirement plans as you want.
  • Withholding (in qualified plans) – Qualified plans are required to withhold 20% of distributions that are paid to the account holder. Direct transfers, however, are not subject to this 20% taxable income. This factor alone is worth considering when transferring your assets.
  • Inherited IRAs – A direct transfer is the only way an account owner can transfer an inherited IRA to another institution. Any amount that is payable to the beneficiary immediately becomes taxable income. Unless the custodian makes an error, there is no way to “fix” this.
  • Divorce – A direct transfer is the only way to distribute the awarded amount to an ex-spouse without tax penalties.
  • Timing – While 60-day rollovers are subject to time constraints, direct transfers are not.
  • IRS Relief – Unlike 60-day rollover issues, any problem that comes up with a direct transfer will automatically be exempt from taxes.


At the end of the day, if you want to transfer money from an IRA or other qualified retirement plans, a direct transfer is the best way to avoid most or all tax consequences.

Always speak with your fiduciary financial advisor for help with tax relief and the mechanics of transferring funds. This could get very complicated and you don’t want to make mistakes, especially irreversible ones.

If you don’t know where to start, I would love to help.


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