The IRS considers direct rollovers to be reportable events, but not taxable ones. For this reason, the direct rollover is the best way to move money when performing a Simple IRA rollover. If, on the other hand, you choose an indirect rollover, you’re risking the tax status of part, if not all, of the funds. Unless you have a very good reason to perform the indirect rollover, choose a direct Simple IRA rollover instead.

Strictly speaking, there are two ways to do a Simple IRA rollover. And while you can certainly elect to do either, be aware that there’s a distinct tax advantage that comes with one choice that doesn’t exist with the other.

One option – the indirect Simple IRA rollover – occurs when you request the managers of your existing IRA to send the funds directly to you. In this scenario, you then have the responsibility for depositing that money into another retirement account of your choosing. The problem with this approach is that it changes the tax status of your money and lowers the value of your account. For starters, the old account manager with automatically withhold 20% of your funds, before you ever even receive a check.

In addition, you’ll be required to get the money into a new IRA within a set time – typically 60 days, according to current IRS statutes. If you don’t meet this deadline, the money will be considered a withdrawal and you’ll be subject to regular income taxes, as well as early withdrawal penalties if you’re under the current minimum retirement age of 59 ½. All of these charges can add up to a substantial loss from the money you’ve set aside for your retirement.

Moving your money like this, in a way that changes the tax status from deferred to taxable, usually doesn’t make any sense. After all, the entire reason you opened a Simple IRA plan in the first place was to defer taxes and allow your money to grow undisturbed until retirement. In general, IRA accounts were established to encourage savings and to make it easier for both employers and employees to contribute funds for retirement. An indirect rollover runs the risk of changing that status you were working so hard to keep.

Fortunately, maintaining the tax deferred status of your retirement accounts is a simple matter. To do so, contact the manager of the new – or target – IRA and ask him or her to perform a direct Simple IRA rollover. Ask for exactly that – a direct rollover. This request will begin a specific process where your money will move directly from the Simple IRA into your new IRA without your involvement in the process.

In this type of transfer, you – the account holder – will never hold the money in your hands. The manager of the target IRA will contact his or her counterpart at the Simple IRA plan and make all the necessary arrangements to send over the money. The rollover may occur in the form of a wire transfer, a check or whatever other instrument is most convenient for both parties. However, the thing to be aware of here is that the money will never come to you.