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 $23,500 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.
Medallion Signature Guarantee
A medallion signature guarantee is a bank stamp that verifies your identity for securities transfers. Your own bank or credit union usually provides it free.
ACATS Transfer
ACATS is the automated system that moves IRA and brokerage accounts between firms in about a week. Employer 401(k) plans cannot move via ACATS — only rollovers.
20% Mandatory Withholding
When a 401(k) check is in your name, the plan must withhold 20% for federal tax. On $100,000 you get $80,000 — but must redeposit the full $100,000 in 60 days.
Trustee-to-Trustee Transfer
A trustee-to-trustee transfer moves retirement money directly between custodians — no check to you, no 20% withholding, no 60-day clock, no annual limit.
One-Rollover-Per-Year Rule
You can make only one indirect IRA-to-IRA rollover in any 12-month period across all your IRAs. Direct transfers and 401(k)-to-IRA rollovers do not count.
Lump-Sum Distribution
A lump-sum distribution pays out your entire 401(k) balance within one tax year after a triggering event. It is the gateway requirement for the NUA tax break.
Required Minimum Distribution (RMD)
RMDs are IRS-required annual withdrawals from pre-tax retirement accounts starting at age 73 — or 75 if born in 1960 or later. Missing one costs up to 25%.
Inherited IRA
An inherited IRA holds retirement money you receive as a beneficiary. Non-spouses get no 60-day rollover, and most must empty the account within 10 years.
Force-Out Rollover
If your old 401(k) balance is under $7,000, the plan can force you out — cashing out small balances or auto-rolling your money into an IRA you did not choose.
72(t) Substantially Equal Periodic Payments (SEPP)
Rule 72(t) allows penalty-free IRA withdrawals before 59½ through fixed annual payments. One wrong move busts the plan and triggers retroactive penalties.
Free decision tools
Understanding the terms is the first step. These free tools apply the rules to your specific situation.