Direct vs Indirect Rollovers: A Detailed Breakdown

A direct rollover occurs when funds move directly from one financial institution to another (e.g., Vanguard to Fidelity) without you ever touching the money. This is the safest method as there is no 20% mandatory IRS withholding and no 60-day deadline pressure. An indirect rollover means the check is made payable to you. If coming from a 401(k), the employer MUST withhold 20% for taxes. You then have 60 days to deposit the FULL original amount (meaning you must make up the 20% out of pocket) into the new IRA, or face severe tax consequences.