Which term describes a tax-free distribution of funds from one retirement plan to another, if done within 60 days?

Which term describes a tax-free distribution of funds from one retirement plan to another, if done within 60 days?

• A. transfer
• B. nonresident producer
• C. rollover
• D. temporary license

Answer: (C)

The concept being tested is how a tax-free rollover works under the 60-day rule for retirement plan distributions. A rollover happens when you take a distribution from one retirement account and place those funds into another eligible retirement account within 60 days. If you complete the move within that 60-day window, the distribution is not taxed at the time of withdrawal and its tax-deferred status continues in the new account. This is different from a direct transfer, where the funds move straight from one plan administrator to another without you handling the money, so there’s no 60-day window and typically no taxable event. The other terms listed aren’t about moving retirement funds in a way that preserves tax-deferred status, so they don’t fit the concept described. If the 60-day window isn’t met, the distribution becomes taxable and may incur penalties if you’re under age 59½.

The concept being tested is how a tax-free rollover works under the 60-day rule for retirement plan distributions. A rollover happens when you take a distribution from one retirement account and place those funds into another eligible retirement account within 60 days. If you complete the move within that 60-day window, the distribution is not taxed at the time of withdrawal and its tax-deferred status continues in the new account. This is different from a direct transfer, where the funds move straight from one plan administrator to another without you handling the money, so there’s no 60-day window and typically no taxable event. The other terms listed aren’t about moving retirement funds in a way that preserves tax-deferred status, so they don’t fit the concept described. If the 60-day window isn’t met, the distribution becomes taxable and may incur penalties if you’re under age 59½.