401(k) rollover glossary
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.
A direct rollover is the safest, cleanest way to move retirement money from one account to another. Your old custodian transfers the funds directly to the destination institution — the money never passes through your hands, so the IRS does not treat it as a distribution.
Because no distribution occurs, there is no mandatory 20% federal withholding, no 60-day deadline to meet, and no risk of a taxable event. The entire balance moves intact.
In practice, you call your old custodian, request a direct rollover to your new IRA or 401(k), and provide the destination account details. The custodian either wires the funds electronically (Fidelity, Schwab, Vanguard) or sends a check made payable to the destination institution — not to you personally.
If the custodian tries to mail a check made out to your name rather than to the destination institution, that is an indirect rollover — not a direct rollover — and triggers the 20% withholding requirement. Insist that the check be made payable to the new custodian 'FBO [your name]' (For Benefit Of).
Direct rollovers are reported on your 1099-R with Box 7 code G (for traditional 401k) or code H (for Roth 401k). If your 1099-R shows code 1 or 7, your custodian may have miscoded the distribution — request a corrected form.
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Frequently asked questions
- Can a direct rollover go into any type of IRA?
- Traditional 401(k) can roll into a Traditional IRA or a Roth IRA (as a conversion, creating a taxable event). Roth 401(k) must roll into a Roth IRA — rolling Roth 401(k) into a Traditional IRA permanently loses tax-free status.
- What if my custodian issues a check instead of wiring the funds?
- A check made out to the destination institution ('Fidelity FBO [Your Name]') is still a direct rollover. A check made out to you personally is an indirect rollover — subject to 20% mandatory withholding. Ask explicitly for an FBO check or electronic transfer.
- How long does a direct rollover take?
- Electronic transfers (Fidelity, Schwab, Vanguard) take 3–5 business days. Paper-based custodians (Voya, Empower, Principal) take 10–21 business days. Plan accordingly if you have a hard deadline.
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This glossary entry provides educational information based on IRS rules. It is not tax or legal advice for your specific situation.