Reference
401(k) Rollover Glossary
Every term you'll encounter during a rollover — explained in plain English, not IRS-speak.
Direct Rollover
A direct rollover sends your 401(k) funds custodian-to-custodian — no check is issued to you, no 20% federal withholding, and the 60-day clock never starts.
Indirect Rollover
An indirect rollover sends a check to you personally. Your custodian withholds 20% for federal taxes automatically, and you have 60 days to deposit the full gross amount — including the withheld 20% — into the destination account.
The IRS 60-Day Rollover Rule
If you receive a retirement distribution directly (a check made out to you), you have 60 calendar days to deposit the full gross amount into a qualifying retirement account. Missing the deadline makes the entire amount taxable income.
Rule of 55
The Rule of 55 lets you take penalty-free withdrawals from your 401(k) if you leave your job in the year you turn 55 or later — but only from that specific employer's plan, and only before rolling over.
Net Unrealized Appreciation (NUA)
NUA is a special tax election for 401(k) accounts that hold appreciated employer stock. It lets you pay lower long-term capital gains tax on the stock's growth instead of ordinary income tax — but the election must be made at distribution.
Roth Conversion
A Roth conversion moves pre-tax retirement money (Traditional IRA or 401k) into a Roth IRA. You pay income tax on the converted amount today — in exchange for tax-free growth and withdrawals in retirement.
After-Tax 401(k) Contributions
After-tax 401(k) contributions are voluntary contributions beyond the standard $23,000 pre-tax limit, made with money you've already paid income tax on. At separation, the principal can roll to a Roth IRA tax-free.
Form 5498
Form 5498 is the IRS form that your IRA custodian files annually to report rollover contributions and IRA values. It is your proof that a rollover was completed correctly — and a mismatch with your 1099-R is a common audit trigger.
Form 1099-R
Form 1099-R is the tax form your old custodian sends you after a retirement distribution. Box 7 contains the distribution code — code G (direct rollover) means no tax; code 1 (early distribution) means a taxable event. Custodians frequently miscode rollovers.
Free decision tools
Understanding the terms is the first step. These free tools apply the rules to your specific situation.