Withdrawing money or assets from an eligible retirement plan and transferring it to another eligible plan can result in a rollover, provided the transfer happens within sixty days. The actual transaction is not taxable, however it is reported on your tax return to the IRS. Some distributions are not eligible to be rolled over. These non-eligible distributions include:

• Any part of the distribution that isn’t taxed. For example, after tax contributions to retirement plans. There are certain situations which may make these types of distributions eligible to be rolled over, so check with your financial advisor.
• Any distribution that is made as part of a series of payments which will continue throughout your life, or the life of you and a beneficiary, as well as any made for a predetermined length of time of ten years or more.
• Required minimum distribution
• Hardship distribution
• Dividends paid on employer securities
• Life insurance coverage costs

There are additional exclusions pertaining to certain loans and corrective distributions. You are required to include the taxable amount of any non-rolled over distribution in your income for the year in which it was received.

If you receive a distribution from a plan that is eligible to be rolled over to another plan, you have sixty days from the date your receive it to put it into another retirement plan. Distributions from employer sponsored retirement plans are subject to a mandatory income tax of 20%, whether you intend to roll it over or not. If a rollover occurs, you can opt to defer the tax on the taxable portion, but you will need to add funds from additional sources in the amount you withheld. You can also choose to have the payer rollover the distribution into another eligible plan directly. These types of rollovers aren’t subject to the 20% mandatory tax.

Any distributions made to taxpayers under the age of 59 ½ are subject to a 10% additional tax as an early distribution penalty, unless an exception applies. In certain SIMPLE IRA, the distribution may be subject to a 25% tax as opposed to the 10% additional tax.