What’s the difference between a distribution and a rollover?

The difference is what you do with the money within 60 days after it leaves the plan—and its tax consequences.

  1. If you do not deposit the money into another 401(k) plan or an IRA, it is a distribution and is taxable.
  2. If within 60 days you deposit it into another 401(k) plan or an IRA, it is a rollover and not taxable—nor subject to a 10% penalty.