In many cases, either because of a change in employment or the plan's use, an employee may need to move the funds that have been placed in their 401k into another account. Sometimes, a 401k is transferred using the rollover method, which delivers a check to the employee for a large percentage of the 401k's value. However, a portion of the 401k is not given to the employee, and if they do not place their check into an IRA along with money to replace the missing percentage, IRS requirements say that income taxes need to be paid. In favor of a rollover, a direct transfer sends funds directly between one retirement account and another. It generally transfers between a 401k and an IRA, completely without any action on the employee's part. Therefore, there is absolutely no tax obligation on the employee, making it simple to transfer, and even multiple times.