A rollover IRA is an individual retirement account used to receive retirement money moved from an employer plan (like a 401(k)) into an IRA, so the funds can stay in a retirement account wrapper instead of being cashed out. It often comes up after a job change, retirement, or when an old plan is being consolidated into fewer accounts for easier tracking.

Who typically needs it: People leaving an employer plan or consolidating multiple old workplace accounts.
Why it matters: Done correctly, a rollover can keep taxes and penalties off the table at the time of the move.

How a Rollover IRA Works

A rollover IRA is not a special “type” of IRA with unique tax rules. It is usually a traditional IRA that holds money that came from an employer retirement plan. The way the money moves is what drives the deadlines and the risk level.

Direct rollover

A direct rollover is the smoothest path for most people. The money moves from the employer plan straight to the IRA provider, with no stop in your personal bank account. Because the funds are not paid to you, the employer plan’s mandatory 20% withholding does not apply in a direct rollover.

What it looks like in real life:

You open a rollover IRA with the receiving institution.
You request a direct rollover from the old plan.
The check is made payable to the IRA custodian (often “FBO” you) or funds are sent electronically.

Indirect rollover

An indirect rollover happens when the employer plan pays the distribution to you first and you then deposit it into an IRA. This route comes with a deadline, and it also tends to create withholding headaches.

Two key realities:

The 60-day clock starts when you receive the money, not when you get around to paperwork.
If the plan withholds 20% for taxes, rolling over the “full” amount means replacing the withheld portion from other funds.

Trustee-to-trustee transfer

A trustee-to-trustee transfer usually refers to moving money from one IRA to another IRA directly between the institutions, without the funds being paid to you. It is widely used for IRA consolidation because it avoids the 60-day scramble and helps sidestep the one-rollover-per-year limit that applies to certain 60-day IRA rollovers.

Comparison table

Method	Money touches your hands?	Typical best use	Main risk
Direct rollover (plan → IRA)	No	Moving a 401(k)/403(b) to an IRA	Low administrative risk if paperwork is right
Indirect rollover (paid to you)	Yes	Rare “bridge” situations	Deadline miss, withholding gap, accidental taxable distribution
Trustee-to-trustee transfer (IRA → IRA)	No	Moving or consolidating IRA accounts	Usually low, but follow receiving firm’s process

Rollover IRA Rules & IRS Deadlines

This is what protects people from expensive mistakes. The rules are not hard, but they are strict.

60-day rule

If you receive a distribution and intend to roll it over, you generally have 60 days to complete the rollover into an eligible retirement account. Missing that window can turn the amount into a taxable distribution, and that can also trigger the 10% additional tax if you are under age 59½.

Practical takeaway: use direct rollovers and direct transfers when possible, because the deadline disappears from your life.

One-rollover-per-year rule

The one-rollover-per-year rule limits certain IRA-to-IRA 60-day rollovers to one in a 1-year period, under guidance issued by the IRS. This limit does not apply to trustee-to-trustee transfers, which is one reason professionals often default to direct transfers for IRA-to-IRA moves.

Practical takeaway: if you are consolidating multiple IRAs, direct transfers are usually the cleaner approach than trying to do multiple 60-day rollovers.

Tax withholding rule (mandatory 20%)

When money is directly rolled over from an employer plan to an IRA, the 20% mandatory withholding does not apply. When funds are paid to you instead, withholding can apply, and that creates a shortfall if your goal is to roll over the entire distribution.

Example of the withholding trap:

Old plan balance distributed: $100,000.
Withholding taken: $20,000.
You receive: $80,000.
To roll over the full $100,000, you would need to deposit $100,000 into the IRA within the deadline, which means replacing the withheld $20,000 from other funds.

Early withdrawal penalties

If you are under age 59½ and an amount is not rolled over, the distribution may be subject to the additional 10% tax on early distributions. This is separate from ordinary income tax that may apply to taxable amounts.

Exceptions and waivers

There are situations where the 60-day requirement can be waived, and the IRS maintains guidance on waivers and related relief pathways. This is not a strategy to lean on, but it is helpful context if a deadline was missed due to circumstances outside your control.

Rollover IRA vs Traditional IRA vs Roth IRA

A rollover IRA often functions like a traditional IRA, but it is labeled “rollover” to track that the funds came from an employer plan. Roth IRAs follow a different tax setup and different distribution mechanics, and moving pre-tax money into Roth is generally treated as a conversion concept with tax impact, rather than a simple like-to-like rollover.

Feature	Rollover IRA	Traditional IRA	Roth IRA
Tax treatment	Commonly tax-deferred when funded with pre-tax employer plan assets	Tax-deferred growth; taxable distributions under IRA rules	After-tax contributions; qualified distributions can be tax-free under Roth rules
How you get money in	Usually from an employer plan rollover	Contributions, transfers, rollovers	Contributions (income limits may apply) and conversions
Distribution rules	Similar framework to traditional IRA once inside the IRA	Standard IRA distribution rules apply	Different ordering and qualified distribution rules
Best for whom	People consolidating an old workplace plan while keeping retirement status	People building retirement savings outside a workplace plan	People targeting tax-free qualified withdrawals later

Rollover IRA Pros and Cons

Rollover IRAs are popular because they give breathing room after a job change and can simplify retirement tracking. The downside is that a sloppy rollover creates taxable events that were easy to avoid.

Pros:

Tax-deferred growth when pre-tax plan funds roll into a traditional or rollover IRA.
Consolidation of old workplace plans into one account for simpler tracking.
Broader investment flexibility versus many employer plans.
Potential fee improvements, depending on the new provider and investment mix.

Cons:

Tax mistakes can happen if the rollover is handled incorrectly or a deadline is missed.
Indirect rollovers carry the biggest “60-day risk” and the most paperwork stress.
Traditional-style IRA balances are subject to required minimum distributions later, which affects long-term planning.
Withholding can create a cash gap if the distribution is paid to you and you want to roll over the full amount.

Step-by-step: the clean rollover workflow

This is a simple process that fits most situations:

Decide where the rollover IRA will live (bank, brokerage, trust company).
Open the rollover IRA first so the receiving account is ready.
Request a direct rollover from the old plan, not a check payable to you.
Confirm the check payee line or wiring instructions match the receiving institution’s requirements.
Track the deposit and keep records (distribution statement, deposit confirmation, and any rollover forms).

Why Use Nevada Trust Company for a Rollover IRA?

A rollover is often the start of a longer planning chapter, not just a one-time transaction. At Nevada Trust Company, we provide trust, custody, escrow, retirement, and investment management services, with a client-first approach and support from experienced professionals.

For investors who want continuity, reporting discipline, and long-term asset management after consolidating retirement accounts, that service scope can be a strong fit. Contact us today to learn more.