Chartered Retirement Planning Counselor (CRPC) Practice Exam 2025 – Comprehensive All-in-One Guide for Exam Success!

A direct rollover is a specific transaction that enables the immediate transfer of assets from a qualified retirement plan, such as a 401(k), directly into another eligible retirement plan, like an IRA or another qualified employer plan. This type of rollover eliminates the possibility of tax withholding or penalties that can come with cash distributions.

The key advantage of a direct rollover is that it allows participants to maintain their tax-deferred status on the funds being transferred without the risk of unintended tax consequences. In this process, the account holder never takes possession of the funds; instead, the funds are transferred directly between the financial institutions or plans involved, promoting a seamless transition and preserving the retirement account's benefits.

In contrast, an indirect rollover involves the account holder receiving the funds first, which may lead to the requirement of tax withholding, and the account holder must deposit the full amount into another qualified account within a specific timeframe to avoid taxes and penalties. Other options like partial or conduit rollovers have their own specific rules and characteristics that differentiate them from a straightforward direct rollover.