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Direct Transfer

Direct Transfer refers to the movement of retirement funds from one financial institution to another without the individual owner taking control of the funds during the transaction.

This type of transfer can occur between similar accounts (like an IRA to another IRA) or different types of accounts (like an IRA to a 401(k)). Direct transfers are a tax-free method of moving retirement savings. This process is not subject to the once-per-year limitation that applies to 60-day rollovers, where the individual takes possession of the funds temporarily before reinvesting them in another retirement account.

It’s important to ensure that the transfer is conducted properly as a “trustee-to-trustee transfer” where the two financial institutions directly transfer the money, rather than the individual taking temporary possession of the funds. Otherwise, it may be considered a distribution, which could lead to taxes and penalties.

Please note that there may be specific rules and regulations regarding the types of accounts that can be directly transferred, and it’s always best to consult with a financial advisor or tax professional when making these kinds of decisions.