"People really shouldn't do indirect rollovers," says Ed Slott, an IRA educator and author. "The only advantage is to get temporary use of the money, and that's not really the spirit of the law."
Slott says some financial institutions do make it tough to execute direct rollovers, which could lead some taxpayers to the indirect route.
"I've heard of cases where the investor goes into a bank or brokerage and the staff person doesn't know how to do a trustee-to-trustee transfer -- or they try to talk the customer out of moving the money to another institution," he says. "So, the investor will say, 'Just give me a check, I haven't decided what to do with it yet.' "
Slott thinks the safest way to handle rollovers is direct trustee-to-trustee -- with the receiving institution doing the paperwork. "If you are moving from bank A to broker B, broker B is getting the money, so let him do the paperwork. He'll do it the right way, because he has an incentive to do so."
But I'll wave a caution flag: Don't use an advisor simply because she offers to streamline your paperwork. Brokers and other financial advisors may be able to help you do the rollover paperwork, but you still need to do due diligence on the quality of investments offered and the fees charged. The U.S. Labor Department is gearing up to propose broad new rules later this year that would require brokers to act as fiduciaries, including when they advise clients on rollovers.