What is it called when a taxpayer transfers funds from one IRA to another?

The process of transferring funds from one Individual Retirement Account (IRA) to another is referred to as a rollover. A rollover allows a taxpayer to move their retirement savings from one account to another without incurring taxes or penalties, as long as it is completed within a certain time frame, typically 60 days. This mechanism provides taxpayers with flexibility in managing their retirement savings, enabling them to consolidate accounts or move funds to a different financial institution that may offer better investment options.

Understanding rollovers is crucial for taxpayers, as they need to be aware of the IRS guidelines to avoid potential tax implications. For example, if the rollover is not completed correctly, it could result in the funds being treated as a distribution, which might lead to tax liabilities and possible penalties if the taxpayer is under the age of 59½.

While the terms 'distribution,' 'contribution,' and 'transfer' are related to retirement accounts, they signify different actions. A distribution refers to withdrawing funds from an IRA, a contribution is the act of depositing money into an IRA, and a transfer typically involves moving money directly between financial institutions without the taxpayer taking possession of the funds. While direct transfers can also be tax-free and are commonly used, the specific terminology for moving funds with the intent