Direct-rollover meaning

The transfer of funds out of a 401(k) plan or qualified plan directly into another account, such as an Individual Retirement Account (IRA) or a specially established account. By doing a direct rollover, the plan owner avoids paying withholding taxes and a penalty (typically between 10 and 20 percent). If, instead of doing a direct rollover, the owner opts to have plan money paid directly to him- or herself, taxes and penalties withheld reduce the amount of the payout.
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