Rollover

Owen leaves his job and instructs his 401(k) plan to send his entire balance DIRECTLY to the custodian of his new IRA. This move is:

1. A.An indirect rollover, which he must complete within 60 days to avoid taxation.An indirect rollover happens when the participant receives the funds personally. Here they never pass through his hands.
2. B.A taxable distribution, because leaving the employer ends the plan tax deferral.Separating from service permits a distribution but does not force taxation. A properly executed rollover keeps the deferral intact.
3. C.A direct rollover, because the money goes from the plan straight to the IRA custodian and Owen never takes possession of it.Correct. Custodian-to-custodian movement is the defining feature of a direct rollover.
4. D.A Roth conversion, because moving money between account types is always a conversion.A conversion means moving pre-tax money into a Roth account and paying tax now. Moving a 401(k) into a traditional IRA is not that.

Why: When the plan sends the money straight to another custodian, Owen never has possession or use of the funds. That is a direct rollover, and because there is no distribution to the participant, none of the complications that attach to receiving a check personally apply. Review rollovers and transfers in the retirement accounts topic.

An indirect (60-day) IRA rollover must be completed within:

1. A.30 daysThirty days is shorter than the rule allows, and a client who relied on it would redeposit early rather than late, so it is not the dangerous error. The deadline that governs is 60 days from receipt of the distribution.
2. B.180 daysBelieving there are six months to redeploy the money is how an account holder blows the deadline and converts a rollover into a taxable distribution, potentially with an early withdrawal penalty. The redeposit window is 60 days.
3. C.One yearA one-year period does appear in the rollover rules, but it governs frequency rather than duration: an indirect rollover is permitted only once in any twelve-month period. The completion deadline for the one you are doing is 60 days.
4. D.60 daysCorrect - the 60-day rollover window.

Why: To avoid tax and penalty, an indirect rollover must be redeposited within 60 days.

A representative tells a retiring customer that she should roll her workplace retirement plan into an IRA at the rep's firm. No specific security is mentioned. Does Regulation Best Interest apply?

1. A.No, because the assets are still held in the workplace planWrong. The location of the assets when the advice is given is irrelevant; the advice is what is regulated.
2. B.No, because no particular security was recommendedWrong. This is the most common misreading of the rule. Reg BI reaches securities, strategies, and account types alike.
3. C.Yes, but only if the rep earns a commission on the rolloverWrong. Compensation creates a conflict that must be handled, but Reg BI applies whether or not the rep is paid for the specific recommendation.
4. D.Yes, because a recommendation of an account type, including a rollover, is coveredCorrect. Account-type and rollover recommendations are squarely within Reg BI.

Why: Yes. Reg BI expressly covers recommendations of account types, including rollovers and transfers, not just recommendations of individual securities. The rep must have a reasonable basis to believe the rollover itself is in the customer's best interest.

The 60-day (indirect) IRA rollover is limited to:

1. A.One per 12 monthsCorrect - the once-per-year rule.
2. B.Unlimited rolloversThis is true of the wrong transaction type. Direct trustee-to-trustee transfers, where the money never touches the owner's hands, may be done as often as desired; the 60-day indirect rollover is the one that carries a frequency cap.
3. C.One per weekA weekly allowance is not a rule found anywhere in the IRA rollover provisions. The limit is one indirect rollover in any 12-month period, measured across all of the owner's IRAs rather than account by account.
4. D.None everThis overcorrects a real restriction into an outright ban. Indirect rollovers remain permitted; the owner simply must complete the redeposit within 60 days and may do so only once per 12 months.

Why: One 60-day rollover per 12 months across all IRAs; direct trustee-to-trustee transfers are unlimited.