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March 3, 2009

What is the difference between a direct rollover and an indirect rollover?


What is the difference between a direct rollover and an indirect rollover?

What is the difference between a direct rollover and an indirect rollover?

direct rollover includes two features. (I) it usually involves a non-IRA retirement plan, such as a qualified plan403(b) account or 457(b) account on the receiving or delivering end, and (II) the distributed assets are payable to the receiving custodian/trustee or retirement plan, for the benefit of the participant. For instance, if the assets are being moved from a qualified plan to an IRA, the following is an example of how the payment would be reflected on the instrument of payment “IRA FBO John Brown- ABC as Custodian or ABC as Custodian for John Brown IRA”.

With an indirect rollover, the assets are distributed to the participant/employee, who has 60-days after the date of receipt to rollover the amount to an eligible retirement plan.

TIP:According to the IRS’ instructions for filing Form 1099-R and Form 5498, when reporting a Direct Rollover, the issuer should:
For Form 1099-R
In box 7 of 1099-R Use Code G for a direct rollover from a qualified plan, section 403(b) plan or a governmental section 457(b) plan to an eligible retirement plan (another qualified plan, a section 403(b) plan, a governmental section 457(b) plan, or an IRA).
Also use Code G for IRA rollover contributions to an accepting employer plan and for IRRs.
Note: Do not use Code G for a direct rollover from a designated Roth account to a Roth IRA. Use Code H.
Code G and Code H can be paired with Codes 4 and/or Code B.
For Form 5498
For Form 5498, enter the rollover contribution in Box 2
Reminder: Form 5498 is only issued for IRAs (traditional, SEP, SIMPLE and Roth IRAs).

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.


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