What is a rollover in the context of retirement accounts?

A rollover in the context of retirement accounts refers to a qualified transfer of funds from one tax-favored account to another. This process allows an individual to move their retirement savings from one account, such as a 401(k), to another, like an IRA, without incurring taxes or penalties, provided that the transfer is done correctly and within the IRS guidelines. The key feature of a rollover is that it keeps the funds intact in a tax-advantaged environment, allowing the account holder to continue growing their retirement savings without immediate tax implications.

This process is significant for individuals who want to consolidate their retirement accounts, seek better investment options, or avoid fees associated with their current retirement plans. By effectively managing these transfers, individuals can optimize their retirement savings strategy while adhering to the regulations governing such transactions.