The best, most desirable option for transferring funds to your rollover IRA account is to request a transaction called a direct rollover. In this type of transaction, you begin with your rollover IRA account managers or trustees. Tell them you want a direct rollover of your IRA funds, using the exact phrase “direct rollover”. This is a phrase that has a specific meaning in the world of IRAs, and it will create an obligation for the manager or trustee to carry out the transfer in this particular manner.

There are three possible ways to transfer funds into your rollover IRA account.  Let’s start with the most undesirable and work our way towards the most desirable option.

The most undesirable way to transfer funds to your rollover IRA account is to withdraw your money and make the deposit yourself.  But why is this so undesirable?  First of all, because any time you make a request to withdraw money from your account, the manager or trustee is obligated to withhold a percentage of the money for the IRS – typically 20%, which comes right off the top of your account balance.

Assuming you deposit these funds into another qualified retirement account within 60 days, you won’t be subject to any additional penalties.  But if you hang on to the money for even a day longer, you’ll also be subject to early withdrawal penalties if you’re younger than 59 ½ years old, as well as federal and state income taxes on not only the amount you contributed, but also on any interest you earned, according to IRA rollover rules.  As you might imagine, all of these fees, taxes and penalties can significantly reduce the size of your retirement savings.

You can improve on this situation somewhat by asking the manager or trustee of your account to issue a check to you that’s made payable to the manager or trustee of your new rollover IRA account.  If you get that check deposited and credited into your new rollover IRA account promptly – within the time frame established by the IRS – you may avoid owing any penalties, fees or taxes.

However, bear in mind that this time frame is very inflexible – you hold all the responsibility for making sure things go smoothly, and there’s still a chance you could get hit with taxes and penalties.  You’ll also have to make sure that you don’t deposit that check by accident into any of your other accounts.  But fortunately, you don’t need to risk these penalties or inconvenience yourself in the first place.  There’s another IRA rollover transfer option that you can take advantage of that eliminates these scenarios entirely.

In a direct rollover, the manager of the rollover IRA account will first make sure your rollover account is ready to receive funds and will then contact the manager of your existing IRA to request that the funds be sent over.  The manager of your existing account will then transfer the funds directly to the rollover IRA, either by issuing a check that’s delivered directly to the rollover IRA manager or via an electronic transfer – whatever works best for the two parties.

Your entire role in this transaction consists of making the request and completing some paperwork (which the account manager can help you with) to make the IRA rollover request official.  Once this documentation is complete, all you have to do is sit back and wait for the transfer to be completed, content in the knowledge that you won’t be responsible for unnecessary taxes, penalties and withholding fees.