Function
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The purpose of an IRA rollover is to move money into an IRA or to take it out of the IRA and put it in a different type of retirement account. You could move money from a 401(k) into an IRA or move money from one IRA into another. You may need to do this when leaving a job and you have money in a 401(k). You can also change IRA providers to get more investment options or lower fees.
Rules
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To roll you money from one retirement account to another, you have to abide by IRS rules. The IRS requires you to move the funds from one account to another within 60 days of taking the money out of your account. If you close one IRA or 401(k), you have to deposit the money into another retirement account within 60 days or the rollover will be subject to penalties.
Penalties
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If you do not transfer on time, you will pay a 10 percent penalty as if taking an early distribution of your retirement funds. In addition to the early distribution penalty, you will pay taxes on the amount that you take out. The tax will be at your marginal tax rate.
Transfer
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If you have the option to do so, a transfer may be easier than a rollover. With a transfer, the money in your retirement account transfers directly to the institution you choose. With this process, you open an account with a new IRA provider and fill out a form from your old IRA firm. The money goes directly to your new IRA and you never have to touch it.
Roth IRA
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If you wish to transfer your funds into a Roth IRA, this falls into a different transaction category known as a conversion. When you convert your account to a Roth, you have to pay tax on the money you had in your original IRA. You will fund this type of account with after-tax money instead of pre-tax contributions.
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