What does a rollover refer to in the context of IRAs?

A rollover in the context of IRAs specifically refers to the process of transferring money from one IRA account to another. This transaction allows individuals to maintain the tax-advantaged status of their retirement savings while changing financial institutions or investment strategies.

When funds are rolled over, the account holder typically avoids immediate taxation or penalties that may result from cashing out an account. Rollovers need to be completed within a specific timeframe to qualify as tax-free events, and there are specific rules about how this can be done, ensuring the funds are not considered distributed to the individual in a taxable way.

The other options presented do not accurately capture the concept of a rollover within IRAs. For example, moving funds between bank accounts refers to standard banking transactions, cashing out an IRA involves taking a distribution that may be taxed, and investing in a new retirement plan involves setting up a different retirement vehicle rather than moving existing funds from one IRA to another. Each of these scenarios does not align with the specific definition of a rollover as it pertains to individual retirement accounts.