The 60-day rollover rule is one of the many traps that lie in wait for investors rolling over a retirement account such as a 401(k) or IRA. You have to follow the rules exactly, or you could end up paying significant penalties -- so it's tricky and potentially costly if you get it wrong. Fortunately, it's not that tough to do it correctly, and a little planning can easily get you through it.

Here's how to safely navigate the 60-day rollover rule, what to watch out for and the penalties for running afoul of the rule.

What is the 60-day rollover rule?

You'll need to be aware of the 60-day rollover rule when you're conducting a rollover or transfer of a retirement account such as a 401(k) or IRA to another retirement account, though the rule also applies to health savings accounts and other tax-advantaged retirement accounts. For example, if you move a 401(k) into an IRA, then you want to be cautious. The good news is that the 60-day rule applies in one particular circumstance, what's called an indirect rollover.

Here's the key difference between a direct rollover and an indirect rollover:

In a direct rollover, a worker requests assets in a retirement account such as a 401(k) or 403(b) be transferred to another retirement plan, such as an IRA. The proceeds move from one institution to another without the money ever going to the plan's owner, and no taxes are withheld from the proceeds. Similarly, a trustee-to-trustee transfer from an IRA or HSA to another similar account moves directly from one institution to the other without the worker taking possession of the money and without taxes being withheld.

In an indirect rollover, a worker requests a cash withdrawal from the retirement account and then moves the money themselves, but must do so within 60 days, the so-called 60-day rule. Often, taxes are withheld from this withdrawal, and the onus is on the worker to add that cash back to make a full rollover of the money.

It's more complicated to go with an indirect rollover, but you get the withheld taxes back when you file your tax return for that year and report the indirect rollover, says Amy Ouellette, CFP and co-founder of Aboon, a financial services company for small businesses.

So the 60-day rule applies when you're making an indirect rollover of a retirement plan, and you'll need to get it done within that time frame or suffer some taxes and penalties. However, in a few circumstances the IRS will waive the 60-day requirement, but applying for a waiver requires even more hoops to jump through.

What are the costs of breaking the 60-day rollover rule?

"The consequences of not following the 60-day rule can be steep," says Scott Meyer, wealth manager and partner at Merit Financial Advisors in Davidson, North Carolina.

If you fail to meet the 60-day window, you could suffer a few consequences:

You may owe taxes and penalties. If you break the 60-day rule on accounts with pre-tax income such as a traditional 401(k) or traditional IRA, the IRS will factor that as income for this tax year. Remember, that money has not been subject to income tax yet. If you're under age 59 1/2 , then you'll be subject to an early withdrawal penalty, too.

You lose out on the tax advantages of the account. If you don't get the money into your retirement account in time, you won't get the tax benefits, and your contributions are limited to only so much each year. "This may be a permanent loss of the ability to earmark these funds for retirement," says Ouellette.

You lose out on any investment returns. If your money is not invested, then you're losing out on potential returns, whether that's due to simply being out of the market in those 60 days or longer term if you're unable to put the money back at all.

With so many Americans feeling behind on retirement savings, it's inadvisable to run afoul of the 60-day rollover rule. But it's not all that difficult to stay on the right side of things.

How to safely navigate a rollover

If you're looking to make a rollover, here's how to do it and minimize your chances of getting in trouble:

You get one rollover a year. "There is a limit for one rollover per 12-month period, to avoid constant cash-outs and re-deposits of IRAs," says Ouellette. She says it's really a limit on indirect rollovers - those "cashing out of IRAs to re-deposit to another IRA in 60 days" - and this once-a-year rule does not apply to trustee-to-trustee transfers, conversions of traditional IRAs to Roth IRAs and other kinds of rollovers.

Do a trustee-to-trustee transfer or direct rollover. If you don't take possession of the money, you'll prevent the problem from the start. "Ask the retirement plan if they can make the check out to the new custodian so you don't take possession of the funds," says Meyer. Just keep in mind that not all plan providers will conduct a direct rollover on your behalf.

Track everything if you do an indirect rollover. Speak with the account providers on the old and new accounts and see how long it will take to receive the payment and then send it along. "You'll want to track the money movement carefully, and set reminders to timely send and confirm receipt at the receiving provider," says Ouellette.

Don't use the money as a short-term loan. Meyer says clients ask him if it makes sense to use the money to, say, fund a loan to themselves in between selling a house and buying another. "In this case, someone should look to other lending options before using a 60-day rule because the risks are too high," he says. "If the bank, mortgage company, inspector, buyer, etc. cause a delay, it can be very costly for you."

In the end, it's easiest to initiate a transfer between the institutions, if you can, and let them handle it directly. You'll save yourself a lot of time and hassle - and potentially money - if you can do it this way.

Bottom line

The 60-day rollover rule can prove to be a snag in the process of conducting a rollover of your retirement accounts, but it doesn't have to be. In most cases, you can avoid it ever becoming a problem in the first place by using a direct rollover or trustee-to-trustee transfer.