What is a rollover and how is it different from a transfer?

  • Updated

There are two types of rollovers:

  • A direct rollover is when funds are moved directly from one custodian to another. The check must be made payable “Digital Trust FBO," followed by your name and/or Digital Trust account number.
  • An indirect rollover, also known as a 60-day rollover, is where you personally take possession of the funds before putting them back into an IRA within the 60-day window. You must deposit this money back into a retirement account within 60 days to prevent the IRS from taxing these funds.

There are four differences between rollovers and transfers:

  • A rollover occurs between two different types of retirement accounts while a transfer occurs between retirement accounts of the same type. For example, moving money from your 401(k) to an IRA is a rollover and moving money from one IRA to another IRA is a transfer.
  • Transfers are initiated by the receiving custodian. For example, if you are moving funds from Fidelity to Bitcoin IRA, we would provide you with a transfer form that you would return to us. Whereas rollovers are initiated by you with your existing custodian.
  • Tax Reporting: While both types of movement are tax free, rollovers are reported to the IRS whereas transfers are not. If you complete a rollover you will receive a 1099-R from your releasing custodian and a 5498 from the receiving custodian for the tax year in which you completed the rollover.
  • Limits: There is a limit of one indirect rollover per 12-month period, whereas there is no limit on the number of direct rollovers and transfers.