What is the difference between an indirect and direct rollover?

Direct rollovers come with fewer caveats than indirect, which require special attention to avoid penalties.

Indirect rollovers occur when the funds from your current plan are distributed directly to you. A 20% tax withholding fee will be taken from your total by your administrator. Once you deposit your distribution, you have up to 60 days to invest any percentage of those funds into your new IRA or 401(K) without an additional penalty tax. Direct rollovers bypass these taxes. With these, your current administrator issues your funds directly to your new plan.