What is the tax-free transfer of funds from one retirement plan to another called?

• A. Rollover
• B. Withdrawal
• C. Conversion
• D. Annuity

Answer: (A)

The tax-free transfer between retirement plans is called a rollover. It lets you move funds from one qualified account to another (for example, from a 401(k) to an IRA) without owing taxes on the amount, as long as the funds go directly into the new plan or IRA within the rules. Direct rollovers—where the funds move straight from one trustee to another—keep you out of withholding and taxes. If you receive the distribution yourself and then redeposit it (an indirect rollover), you must complete the rollover within 60 days and, often, the distribution is subject to 20% withholding, so you’d need to replace that amount to avoid taxes. This concept is distinct from a withdrawal, which is a cash distribution that may be taxable and subject to penalties if you’re under the eligible age. It’s also different from a conversion, which moves funds to a different tax status (like traditional to Roth) and typically triggers taxes on the converted amount. Annuity, meanwhile, is a separate product that provides periodic payments, not a transfer between retirement accounts.