What allows an employee to move retirement funds without incurring immediate tax liability?

The ability for an employee to move retirement funds without incurring immediate tax liability is known as a rollover. A rollover allows an individual to transfer funds from one retirement account to another, such as from a 401(k) plan to an IRA, while keeping the funds tax-deferred. This process ensures that the individual does not face any taxation at the time of the transfer, provided that specific rules and requirements are followed, such as completing the rollover within a specified timeframe.

In contrast, a transfer refers specifically to the direct movement of funds between retirement accounts, such as from one IRA to another. While transfers are also non-taxable, the term "rollover" encompasses a broader range of actions, including indirect rollovers where funds are temporarily taken into possession before being deposited into a new account.

Withdrawal and distribution, on the other hand, involve taking money out of a retirement account for personal use, leading to immediate tax consequences and potential penalties. In summary, the term rollover is what specifically allows the movement of funds without triggering immediate tax liability, making it the correct answer in this context.