Moving money from one retirement account to another sounds like a single action. In practice several distinct mechanisms exist, and which one is used changes who touches the money and what rules attach to it.
Direct movement never passes through the account holder
In a direct movement, the sending institution transmits funds to the receiving institution, often by wire or by a check made payable to the receiving custodian.
The account holder never takes possession of the money, which is the defining characteristic and the reason the mechanism has fewer moving parts.
Because the funds move institution to institution, the paperwork sits with the custodians and the account holder's role is largely limited to authorizing it.
Indirect movement puts the money in the holder's hands
An indirect rollover distributes funds to the account holder, who then deposits them into another qualifying retirement account within a period defined by federal rules.
Distributions from workplace plans are commonly subject to mandatory withholding, which means the amount received can be less than the amount that must be redeposited to complete the move in full.
Missing the deadline or falling short on the amount changes the character of the transaction, which is why the indirect route carries administrative risk the direct route does not.
Transfers between like accounts are a separate category
Movements between two accounts of the same type, such as one individual retirement account to another at a different custodian, are generally treated as transfers rather than rollovers.
Transfers of this kind are not counted as distributions and are not subject to the frequency limitations that apply to certain rollovers.
The practical significance is that a transfer can be repeated without tripping limits that constrain the indirect rollover route.
Account types determine what is even permitted
Not every account can receive money from every other. Workplace plans, individual retirement accounts and their designated variants have different rules about what they accept.
Whether contributions were made before or after tax also travels with the money and has to be tracked, since combining them incorrectly creates a record-keeping problem that persists for years.
Plan documents and custodian policies impose further conditions, so what is theoretically allowed and what a specific plan permits are separate questions.
The rules change and specifics vary
Federal rules governing retirement account movements have been amended repeatedly, and provisions that applied a decade ago may no longer be current.
Consequences differ by account type, by employment status and by individual circumstances, and errors are often difficult to unwind after the fact.
Anyone moving retirement money is dealing with rules that turn on their own facts, which is a situation where a qualified tax professional and the plan administrator are the appropriate sources.