Illinois Municipal Retirement Fund members who leave IMRF-covered employment before retirement often ask whether their accumulated contributions can fund a self-directed IRA holding physical precious metals. The monthly IMRF retirement annuity is a lifetime benefit and is not an account balance that can be transferred to a private custodian. Specific IMRF distributions, however, are eligible rollover distributions under federal law: the separation refund of member contributions and, where applicable, a refund of Voluntary Additional Contributions (VAC). This guide describes those two paths, the federal withholding mechanics, and the Illinois state tax context, where the state’s broad retirement income exclusion means a rollover into a gold IRA carries no Illinois state tax exposure.
IMRF separation refunds and VAC refunds are rollover-eligible into a gold IRA
IMRF members who leave municipal employment can roll their member contribution refund and any Voluntary Additional Contribution refund directly into a self-directed IRA holding IRS-approved precious metals. The monthly IMRF pension annuity is not rollover-eligible. Illinois exempts IRA distributions from state income tax under the Illinois Income Tax Act, so neither the rollover nor future IRA distributions create Illinois state tax exposure. A direct rollover to the IRA custodian avoids the 20 percent mandatory federal withholding that applies when IMRF pays the funds directly to the member.
How IMRF works: a defined benefit pension, not an individual account
The Illinois Municipal Retirement Fund administers pension benefits for employees of Illinois counties, townships, cities, villages, townships, and other local government units, operating under Article 7 of the Illinois Pension Code (IMRF). IMRF is a defined benefit pension plan, which means the retirement benefit is calculated as a monthly payment based on a formula that includes final average earnings and years of credited service, not as an individual account balance that fluctuates with market performance. State teachers participate in the separate Illinois Teachers’ Retirement System, which operates under different rules.
Members pay required contributions into the IMRF system throughout their working years. Those contributions are pooled in the IMRF trust and invested collectively by IMRF. The member does not hold an individual investment account in the way a 401(k) participant does. At retirement, IMRF pays a monthly annuity for the life of the retiree from the trust, not from the member’s personal contribution balance. Because the annuity is a lifetime payment from a pooled trust rather than an individual account balance, it is not an eligible rollover distribution under federal law and cannot be transferred to a self-directed IRA holding precious metals.
Two situations produce a lump sum that the member controls directly: a separation refund when leaving employment before retirement, and a refund of Voluntary Additional Contributions at any time after separation. Both payments qualify as eligible rollover distributions under Internal Revenue Code Section 402(c), which governs rollovers from qualified employer plans. Illinois municipal employees who have left their IMRF employer and want to fund a self-directed gold IRA with their accumulated IMRF funds use one or both of these paths.
The two IMRF distributions that are rollover-eligible
Most IMRF questions about rollovers involve members who have left an IMRF-covered employer and want to recover the contributions they have been paying into the system. IMRF identifies two distinct categories of member funds that can be refunded and rolled over to a qualifying IRA or plan.
- Available to members who permanently leave all IMRF-covered employment
- Refunds the member contribution account: required contributions paid plus credited interest
- Employer contributions remain in the IMRF trust and are not included
- Taking the refund closes the IMRF account and forfeits all service credit
- Eligible rollover distribution; direct rollover to IRA avoids 20% federal withholding
- Service credit can be restored later if the member returns to IMRF employment and repays the refund with interest
- Available to members who elected to make supplemental VAC deposits during employment
- Refunds the VAC account separately from the required member contribution account
- Can be requested at any time after separation, independent of the separation refund decision
- Eligible rollover distribution under IRC Section 402(c)
- Direct rollover to traditional IRA preserves tax-deferred treatment on the earnings portion
- Consult your tax advisor about how the after-tax basis in your VAC account is tracked after a rollover
The IMRF retirement annuity, IMRF death benefit payments structured as monthly survivor annuities, and disability benefits paid as periodic payments are not on this list because they are periodic payments rather than account-based lump sums. Periodic payments from a defined benefit plan are generally excluded from the definition of eligible rollover distributions under IRS rollover rules. A member who has already retired and is receiving a monthly IMRF annuity does not have a rollover option into a private IRA.
Separation refund: the main pre-retirement rollover path
The separation refund is the most common IMRF rollover path. When a member permanently terminates employment with all IMRF-covered employers and is not eligible for or does not wish to begin a retirement annuity, IMRF will refund the member’s required contributions plus the interest credited on those contributions (IMRF: Leaving Your IMRF Employer). The employer contributions that funded the employer’s share of the pension formula are not included; those remain in the IMRF trust.
The decision to take a separation refund is irreversible unless the member later returns to IMRF-covered employment. Taking the refund closes the IMRF account and forfeits the service credit and future benefit rights associated with those contributions. A member who was vested in IMRF and whose projected annuity would provide a meaningful monthly income in retirement is giving up a guaranteed income stream in exchange for a lump sum. That trade-off is outside the scope of this guide and requires analysis from a licensed advisor who can model the specific numbers. What this guide addresses is the mechanics of moving that lump sum into a self-directed IRA once the member has decided to take the refund.
Members who are eligible for an IMRF pension may not take a separation refund simply to generate rollover funds. IMRF’s general rule is that a member who qualifies for a pension of $100 or more per month cannot take a refund and must instead apply for the pension, unless the member elects to take a reduced pension and roll a lump sum (IMRF: Leaving Your IMRF Employer). The specific eligibility rules depend on the member’s age, years of service, and plan. Members approaching retirement age should confirm their options directly with IMRF before applying for a refund.
The federal tax treatment of the separation refund follows the standard rules for eligible rollover distributions. If IMRF pays the refund directly to the member, it must withhold 20 percent for federal income taxes even if the member intends to complete a rollover later (IRS rollovers reference). A direct rollover, where IMRF sends the payment directly to the receiving IRA custodian, avoids the 20 percent withholding because the funds never pass through the member’s hands. IMRF’s distribution forms include a direct rollover election option. If the member is under age 59 and a half and takes an indirect payment that is not rolled over, the amount may be subject to a 10 percent additional federal tax on top of regular income tax on the distributed amount (IRS Retirement Topics: Tax on Early Distributions). A direct rollover avoids both issues entirely. Consult your tax advisor for your specific situation.
Voluntary Additional Contributions (VAC) refund
IMRF offers eligible members the option to make Voluntary Additional Contributions to their IMRF account on top of the required member contributions. VAC deposits accumulate with credited interest and are tracked separately from the required member contribution account (IMRF). Because VAC are employee deposits made with after-tax dollars, the tax treatment at the time of refund differs from the treatment of pre-tax required contributions in some respects, though both types of payments qualify as eligible rollover distributions under IRC Section 402(c).
When a member requests a VAC refund, the payment consists of the original VAC deposits plus credited earnings. The earnings portion is pre-tax growth and becomes taxable when distributed, unless the payment is rolled over to a traditional IRA or other qualified plan. The original contributions were made with after-tax dollars and represent basis that has already been taxed. Rolling the entire VAC refund to a traditional IRA defers the tax on the earnings; the basis is tracked on Form 8606 and will not be taxed again when distributed from the IRA in the future (IRS Form 8606). Alternatively, the after-tax basis portion can roll to a Roth IRA, while the pre-tax earnings roll to a traditional IRA. This split-rollover approach requires careful coordination with the plan administrator and your tax advisor. Consult your tax advisor for your specific situation.
The VAC refund can be requested independently of the separation refund. A member who has already taken the separation refund but not yet requested the VAC refund can roll the VAC balance at a later time, subject to IMRF’s processing timelines. IMRF’s materials note that both member contribution refunds and VAC refunds require approximately eight weeks processing time after IMRF receives the completed request.
Direct rollover versus indirect rollover: the 20 percent withholding rule
Federal law requires a plan administrator, including IMRF, to withhold 20 percent from any eligible rollover distribution paid directly to the participant. This mandatory withholding applies even when the participant states the clear intent to complete an IRA rollover (IRS rollover guidance). The direct rollover method eliminates this requirement because the funds travel from IMRF directly to the receiving IRA custodian and the participant never receives the payment personally.
| Factor | Direct rollover | Indirect rollover (60-day) |
|---|---|---|
| Federal withholding at distribution | 0% (none required) | 20% mandatory |
| Time limit to complete rollover | No 60-day deadline | 60 days from receipt |
| Amount that must be deposited to complete rollover | Only the rollover amount | Full original amount, including 20% withheld |
| Risk of taxable event | None if executed correctly | Yes, if deposit deadline missed or amount short |
| Early distribution penalty risk (under age 59½) | None | Possible on un-rolled portion |
| How IMRF issues payment | Check payable to IRA custodian FBO participant | Check payable directly to participant |
In the indirect rollover scenario, a member who receives a $50,000 separation refund will receive a check for $40,000 after the 20 percent withholding. To complete the full rollover and avoid any taxable event, the member must deposit $50,000 into the IRA within 60 days, covering the $10,000 withheld from personal funds. If only $40,000 is deposited, the $10,000 shortfall is treated as a taxable distribution for the year and may be subject to the 10 percent early distribution additional tax if the member is under age 59 and a half. The withheld $10,000 is credited toward the federal tax bill on the distribution when the member files the annual return.
IMRF will issue a Form 1099-R reporting the distribution. A direct rollover shows code G in Box 7, indicating a tax-free direct rollover to an IRA or qualified plan. An indirect rollover where only part is deposited shows a different code and the taxable amount is reported accordingly. The receiving IRA custodian reports the rollover contribution on Form 5498, which should be retained for tax records.
Illinois state tax treatment: the retirement income exclusion
Illinois’s treatment of retirement income is one of the most favorable in the country. The Illinois Income Tax Act (35 ILCS 5/203) excludes retirement income from Illinois adjusted gross income, which means distributions from qualified retirement plans, IRAs, and pensions are not subject to the Illinois flat income tax rate (35 ILCS 5/203). This exclusion covers traditional IRA distributions, Roth IRA distributions, pension income including IMRF annuity payments, Social Security benefits, and distributions from 401(k) and 403(b) plans.
The rollover mechanics follow the federal characterization. A direct rollover from IMRF to a traditional IRA is not a taxable event federally, and Illinois follows that treatment. The rollover does not appear as taxable income on the Illinois return. Once the funds are in the gold IRA and the member eventually takes distributions in retirement, those distributions are excluded from Illinois income under the retirement income exclusion. The member owes federal income tax on traditional IRA distributions at ordinary income rates, but Illinois does not add a state layer on top.
This state tax treatment is a meaningful aspect of the rollover picture for Illinois municipal employees. States that do tax IRA distributions in retirement add a layer of cost that does not apply in Illinois. An Illinois resident who rolls an IMRF separation refund into a self-directed gold IRA and later takes distributions in retirement pays only federal ordinary income tax on the distributions, with no Illinois component. The individual tax situation depends on the member’s specific circumstances, other income sources, and applicable federal tax brackets. Consult your tax advisor for your specific situation.
Illinois residents who move to another state after retirement should be aware that Illinois’s retirement income exclusion applies to Illinois residents. The tax treatment of IRA distributions in the state of residence at the time of distribution determines the state tax outcome in any given year. Some states tax IRA distributions; others do not. This is a planning consideration for those who may relocate after retirement. For a broader overview of Illinois-specific retirement planning considerations, see our guide to gold IRAs for Illinois residents.
How a self-directed gold IRA receives the IMRF rollover
A self-directed IRA holding physical precious metals is a standard traditional IRA that has been opened with a qualified self-directed IRA custodian rather than a brokerage or mutual fund company. The IRS does not designate specific custodians; the custodian must meet the requirements for a qualified IRA trustee or custodian under Internal Revenue Code Section 408. The participant selects the custodian, opens the account, and directs the investments within the IRA according to the IRS rules for the account type.
Eligible metals under Internal Revenue Code Section 408(m)(3) include American Gold Eagles described in 31 U.S. Code Section 5112(a)(7) through (10), other gold, silver, platinum, and palladium bullion meeting the minimum fineness required for a regulated futures contract market, and certain state-issued coins. The commonly cited fineness standards are 99.5 percent for gold (with the statutory exception for American Gold Eagle coins in the four weights named in 31 U.S.C. 5112(a)), 99.9 percent for silver, and 99.95 percent for platinum and palladium. Collectible coins that do not meet these standards, commemorative coins, and premium coins that do not satisfy the fineness requirement are not eligible. The metals must be stored at a qualified depository, not at the participant’s home or in a personally controlled safe. The participant does not take physical possession until a qualifying distribution event (IRS Publication 590-B).
The operational sequence after an IMRF rollover decision runs as follows. The participant opens the self-directed IRA account with the chosen custodian first. Then the IMRF rollover is directed to that custodian using the direct rollover election on the IMRF distribution form. IMRF issues a check payable to the custodian for the benefit of the participant. The participant delivers the check to the custodian, or IMRF wires the funds directly. The custodian credits the IRA and the participant directs the purchase of eligible metals through a dealer at the custodian’s instruction. The metals are then held at the approved depository in the IRA’s name.
Step-by-step process for IMRF members
Confirm your IMRF distribution eligibility
Contact IMRF or log into Member Access to determine whether you are eligible for a separation refund, a VAC refund, or both. If you are pension-eligible with a projected benefit above IMRF’s refund threshold, confirm whether the refund option is available to you. Request current forms and IMRF’s processing timeline. IMRF states that refund processing takes approximately eight weeks after the required information is received.
Consult a tax advisor and a licensed financial advisor
A separation refund ends your IMRF benefit rights. Before requesting it, a licensed advisor can model the projected IMRF annuity against the rollover amount to help you evaluate whether the trade-off fits your situation. A tax advisor can clarify the specific federal and Illinois state tax treatment of the rollover for your circumstances. This guide covers general mechanics; individual outcomes depend on age, income, other retirement assets, and goals.
Open a self-directed IRA with a qualified custodian
The receiving IRA must be established before the rollover is executed. A self-directed IRA custodian accepts the rollover and holds the metals on the IRA’s behalf. The account opening process typically requires identification documents, a completed application, and funding instructions. Confirm that the custodian accepts precious metals and works with your chosen precious metals dealer.
Complete the IMRF direct rollover election
On the IMRF refund application, elect the direct rollover option and provide the receiving custodian’s account details. IMRF issues the payment as a check payable to the custodian for the benefit of the participant, which avoids the mandatory 20 percent federal withholding. Obtain the exact payee name, address, and account number from the custodian before submitting the IMRF form to avoid processing errors.
Deliver the check and direct the metals purchase
Once the custodian receives and credits the rollover funds, the IRA is funded and eligible for precious metals purchases. The participant works with a precious metals dealer who coordinates with the custodian to execute the purchase within the IRA. The dealer ships the metals directly to the approved depository. The custodian issues a confirmation of the holdings. All future IRS reporting, including RMD calculations and distribution reporting, is handled through the custodian.
Retain rollover documentation
Keep the IMRF Form 1099-R and the IRA custodian’s Form 5498 for your records. If your VAC refund included after-tax basis, track the basis on IRS Form 8606 and retain a copy with your annual tax filings. Proper documentation prevents disputes about the taxability of future IRA distributions, particularly if the basis portion is never taxed again in Illinois or federally.
Who this move is not the right fit for
A self-directed gold IRA funded by an IMRF rollover is not the right choice for every IMRF member who leaves municipal employment. Understanding who this does not suit helps clarify whether the path applies to a given situation.
Members who are pension-eligible and approaching retirement age. An IMRF member who qualifies for a meaningful monthly annuity and is within a few years of the IMRF minimum retirement age (which varies by plan and tier) is trading a guaranteed lifetime income stream for a lump sum that carries investment risk. The value of the guaranteed pension for a healthy person who lives into their 80s or 90s may substantially exceed the lump sum. This comparison requires actuarial analysis from a licensed advisor, not a general guide.
Members with less than the industry-reported minimum for a precious metals IRA. Self-directed precious metals IRA custodians and dealers typically have minimum account sizes or minimum purchase requirements. Augusta Precious Metals, for example, is industry-reported to work with clients starting around $50,000 in eligible retirement funds. Members with smaller separation refunds may find the custodian and dealer fees disproportionate to the account size. Consult your tax advisor and the custodian directly to confirm fit for your specific balance.
Members who may need liquidity within five years. Physical precious metals inside an IRA are illiquid compared to stocks, bonds, or mutual funds. Selling metals within the IRA, requesting a distribution, and navigating custodian fees takes more time and coordination than selling a publicly traded security. Members who anticipate needing the funds within a short time horizon should evaluate whether the illiquidity of a physical metals IRA suits their situation.
Members who are under age 59 and a half with no rollover path. If a member takes the IMRF payment directly without completing a rollover, the distribution is taxable and the 10 percent early distribution additional tax may apply. The rollover path protects against this outcome, but members who do not complete the rollover correctly face tax consequences. We are not financial advisors. Consult a licensed advisor before making retirement decisions.
One option for Illinois municipal employees: Augusta Precious Metals
Augusta Precious Metals is one option an Illinois municipal employee might evaluate when considering where to open a self-directed gold IRA funded by an IMRF rollover. Augusta holds a BBB A+ rating and has maintained that rating since 2014 (BBB: Augusta Precious Metals). The company has been named Money Magazine’s Best Overall Gold IRA Company from 2022 through 2026 and Investopedia’s Most Transparent Gold IRA Company over the same period. Augusta’s public process is education-first: clients work with a salaried, non-commissioned educator and decide whether to proceed only if the product fits their situation.
For IMRF members evaluating Augusta, the industry-reported minimum investment is around $50,000, though current terms are reviewed during the free consultation. The rollover itself, once the IMRF separation refund lands at the custodian, follows the same process as any traditional IRA-to-gold-IRA rollover: the IRA funds a purchase of IRS-eligible metals through Augusta, and the metals are stored at a qualified depository. Augusta’s team handles the coordination with the IRA custodian. Past performance is not a guarantee of future results.
Frequently asked questions
Can I roll over my IMRF pension to a gold IRA?
The IMRF monthly retirement annuity pays as a lifetime benefit and is not an account balance that can be rolled over to a private IRA. Two specific IMRF distributions are eligible rollover distributions: the separation refund of member contributions paid when a member leaves employment before retirement, and a refund of Voluntary Additional Contributions. Either payment can be directed to a traditional self-directed IRA holding IRS-approved precious metals through a direct rollover. Consult your tax advisor for your specific situation.
What is an IMRF separation refund?
A separation refund is a lump sum of the member contributions paid into IMRF plus credited interest, returned when a member permanently leaves IMRF-covered employment and does not begin a retirement annuity. Taking the refund closes the IMRF account and forfeits any service credit and future benefit rights. The refund is an eligible rollover distribution that can be directed by direct rollover to a traditional IRA, which avoids the mandatory 20 percent federal withholding that applies when IMRF pays the funds directly to the member. Consult your tax advisor for your specific situation.
Are IMRF Voluntary Additional Contributions rollover-eligible?
IMRF allows eligible members to make VAC deposits on top of the required member contributions. When a member requests a VAC refund, the payment is an eligible rollover distribution under IRC Section 402(c). The refund can be directed by direct rollover to a traditional IRA to preserve tax-deferred treatment on the earnings portion. Consult your tax advisor for your specific situation.
Does Illinois tax IRA distributions?
Under the Illinois Income Tax Act (35 ILCS 5/203), Illinois excludes retirement income from state adjusted gross income. This exclusion covers distributions from qualified employer retirement plans, IRA distributions, Social Security benefits, and pension income. A resident of Illinois who receives distributions from a traditional IRA does not owe Illinois income tax on those distributions. This means an IMRF member who rolls a separation refund into a gold IRA and later takes IRA distributions pays only federal income tax on those distributions, with no Illinois state layer. Consult your tax advisor for your specific situation.
What is the 20 percent withholding rule on IMRF payments?
Under federal law, when an eligible rollover distribution such as an IMRF separation refund is paid directly to the member rather than to an IRA custodian, IMRF must withhold 20 percent of the taxable portion for federal income taxes. The member then has 60 days to deposit the full original amount, including the withheld 20 percent from personal funds, into a qualifying IRA or plan to complete the rollover. If only the 80 percent net payment is deposited, the 20 percent shortfall is a taxable distribution and may trigger the 10 percent early distribution additional tax for members under age 59 and a half. A direct rollover eliminates the mandatory withholding entirely.
What happens to IMRF service credit if I take a separation refund?
Taking an IMRF separation refund closes the member account and permanently forfeits the service credit tied to the returned contributions. A member who later returns to IMRF-covered employment may restore that service credit by repaying the refund amount plus applicable interest through a repayment arrangement with IMRF. The decision to take a refund, versus leaving contributions on deposit as an inactive member to preserve future benefit eligibility, is significant and should be analyzed with a licensed advisor who can model the projected pension versus the lump sum value for your specific situation.
Which metals are eligible to be held in a gold IRA under IRS rules?
Internal Revenue Code Section 408(m)(3) governs the precious metals an IRA may hold. American Gold Eagles described in 31 U.S. Code Section 5112(a)(7) through (10) qualify by name. Other gold, silver, platinum, and palladium bullion qualifies if it meets the minimum fineness for a regulated futures contract market. The fineness thresholds commonly applied are 99.5 percent for gold, 99.9 percent for silver, and 99.95 percent for platinum and palladium. All metals must be held at a qualified depository in the name of the IRA custodian, not in personal possession. The participant does not take physical delivery until a qualifying distribution event.
Do I owe the 10 percent early distribution penalty on an IMRF rollover?
A direct rollover from IMRF to a traditional IRA is not a taxable distribution and does not trigger the 10 percent early distribution additional tax under IRC Section 72(t), regardless of age. The penalty applies only when a distribution is taken and not rolled over. If a member takes an indirect payment and does not complete the rollover within 60 days, the distributed amount is taxable and the 10 percent penalty may apply for those under age 59 and a half. The separation-from-service exception that applies to some governmental plan payments (at age 55 for most, age 50 for qualified public safety employees) does not survive a rollover to an IRA; IRA early withdrawal rules apply afterward. Consult your tax advisor for your specific situation.
How do required minimum distributions work after rolling IMRF funds into a gold IRA?
Required minimum distributions are excluded from the definition of an eligible rollover distribution under federal law. Once a participant reaches the applicable RMD age under SECURE Act 2.0, any RMD-calculated portion must be taken as a direct payment before the remaining balance can be rolled over. After the rollover into a self-directed IRA, the IRA RMD rules apply going forward. The participant must take the annual RMD from the gold IRA starting at the applicable age, which under SECURE Act 2.0 is age 73 for those born between 1951 and 1959, and age 75 for those born in 1960 or later. Rolling over an RMD by mistake creates an excess IRA contribution subject to additional excise taxes until corrected. Consult your tax advisor for your specific situation.
Sources
- IMRF (Illinois Municipal Retirement Fund). “Leaving Your IMRF Employer.” https://www.imrf.org/en/members/members-must-know/leaving-your-imrf-employer. Accessed July 2026.
- IMRF. Home page describing member contribution refunds and VAC refunds processing. https://www.imrf.org/en. Accessed July 2026.
- IRS. “Rollovers of Retirement Plan and IRA Distributions.” https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions. Accessed July 2026.
- IRS. Publication 590-A: Contributions to Individual Retirement Arrangements. https://www.irs.gov/publications/p590a. Accessed July 2026.
- IRS. Publication 590-B: Distributions from Individual Retirement Arrangements. https://www.irs.gov/publications/p590b. Accessed July 2026.
- IRS. “Retirement Topics: Tax on Early Distributions.” https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions. Accessed July 2026.
- IRS. “Required Minimum Distributions (RMDs).” https://www.irs.gov/retirement-plans/required-minimum-distributions-rmds. Accessed July 2026.
- IRS. About Form 8606: Nondeductible IRAs. https://www.irs.gov/forms-pubs/about-form-8606. Accessed July 2026.
- Illinois General Assembly. Illinois Income Tax Act, 35 ILCS 5/203. https://www.ilga.gov/legislation/ilcs/ilcs5.asp?ActID=616&ChapterID=8. Accessed July 2026.
- Cornell Law School Legal Information Institute. 26 U.S. Code Section 408: Individual Retirement Accounts. https://www.law.cornell.edu/uscode/text/26/408. Accessed July 2026.
- Cornell Law School Legal Information Institute. 31 U.S. Code Section 5112: Denominations, specifications, and design of coins. https://www.law.cornell.edu/uscode/text/31/5112. Accessed July 2026.
- BBB. Augusta Precious Metals business profile. https://www.bbb.org/us/ca/beverly-hills/profile/gold-silver-coins-and-bullion/augusta-precious-metals-1216-482414. Accessed July 2026.
- FINRA. “Precious Metals.” Investor Insights. https://www.finra.org/investors/insights/precious-metals. Accessed July 2026.