If you're fortunate enough to have an employer-sponsored retirement plan like a 401(k), 403(b), or SEP-IRA at work, what you'll likely find is that it will become the most substantial retirement savings vehicle that you have. Yet at some point, you'll be in a position in which you'll want to consider rolling over your retirement plan, either into another plan or into a traditional or Roth IRA. Typically, you can roll over retirement money fairly freely, but there are some types of moves that you're not allowed to make. Below, we'll go through some common moves and what you need to know about them.

What the IRS will let you roll over

For the most part, the tax laws are quite free in allowing workers to roll over their retirement plans. Qualified plans like 401(k)s will typically let you roll money into any other type of retirement plan, including another 401(k), a 403(b) plan, a 457 plan, a SEP-IRA, a SIMPLE IRA, or a traditional or Roth IRA. The same flexibility exists for 403(b) plans and 457 plans. You can even arrange to have money put into a new plan's designated Roth account if it comes from these three types of retirement plans, with any pre-tax amount going into such accounts being treated as a Roth conversion and therefore being included in your current year's taxable income.

SEP-IRAs are almost as flexible. You can roll over money from a SEP-IRA into any other type of plan, but there's a limit preventing you from putting money into the designated Roth account of a 401(k) or other qualifying plan.

SIMPLE IRAs have an additional restriction but otherwise share many rollover features of other retirement plans. With SIMPLE IRAs, there's a two-year waiting period before you can roll over money into another type of retirement plan. Rollovers into another SIMPLE IRA elsewhere are available immediately. However, the two-year period begins on the first date on which your employer makes contributions into the SIMPLE IRA. So if you've already worked at a job and received SIMPLE IRA benefits for a year, then you'll only have to wait one more year before making a move.

The chart below summarizes the information above about what you can and can't do with retirement plan rollovers.

IRS rollover chart.

Image source: IRS.

The best way to do a rollover

Once you've determined whether you can roll over money into another retirement plan, the next step is figuring out the best way to go forward. A direct rollover involves having the financial institution that has your current retirement plan assets -- typically your employer or the company your employer has chosen -- move the money directly to the financial institution handling the destination retirement plan. The benefit of using a direct rollover is that no money will be withheld for taxes from the transfer, and there's no chance of ever incurring a penalty for improperly handling the rollover.

By contrast, an indirect rollover involves having retirement plan money sent to you, leaving it up to you to make the final transfer to the destination retirement plan account. The problem with that approach is that if you don't get the job done within a 60-day period, you'll be treated as taking a taxable distribution of the entire amount of your retirement plan. That will bring you a big tax bill and an even bigger headache in dealing with the financial consequences. In addition, financial institutions often withhold taxes from the check you receive, forcing you to make up the difference in order to avoid a deemed partial distribution.

Often, rolling money over to another type of retirement plan can give you better investment options. By being aware of the rules governing rollovers among different types of retirement plans, you'll be able to avoid any pitfalls and make the most of your retirement money going forward.

The Motley Fool has a disclosure policy.