If you quit federal service, your FERS benefits do not vanish, but what you actually keep depends on two things: how many years you worked, and whether you pull your retirement contributions out as cash or leave them in the system. FERS has three parts that each follow their own rules when you leave early: the basic annuity funded by payroll deductions, your Thrift Savings Plan account, and Social Security credits. Handle any one of them the wrong way and you can lose money for the rest of your life.
The First Decision: Refund or Leave Your Contributions
Every paycheck, a slice of your basic pay was withheld for FERS retirement. When you resign, you choose between two paths for that money.
Take a refund and you get back every dollar you personally contributed. The government’s matching share is not included. You apply through OPM using Standard Form 3106, Application for Refund of Retirement Deductions.1U.S. Office of Personnel Management. Application for Refund of Retirement Deductions If your creditable service is more than a year, OPM adds interest at a rate tied to the average yield on new investments in the retirement fund.2U.S. Office of Personnel Management. FERS Refund Fact Sheet Less than a year of service means no interest, just your contributions back.
Here is what most people underestimate. Taking the refund permanently erases that period of service from your retirement record. Any future monthly annuity based on those years is gone. If you ever come back to federal work and want that time to count again, you have to pay the whole refund back plus accrued interest.
Leave the contributions in and your service history stays intact. You preserve the right to a future monthly pension, called a deferred annuity, even if you never work for the government again. For most people who are vested, this is the more valuable choice by a wide margin. A refund is often only the right call when your service is very short, you need the cash urgently, or you are certain you will never claim a pension.
What the IRS Takes If You Choose the Refund
Your own contributions went in with after-tax dollars, so the principal comes back to you tax-free. The interest is fully taxable in the year you receive it.2U.S. Office of Personnel Management. FERS Refund Fact Sheet
You can dodge that tax by rolling the taxable portion directly into a traditional IRA or another qualified plan. A direct rollover means OPM withholds nothing. If the check comes to you instead, OPM must withhold 20 percent of the taxable amount for federal income tax on any payment over $200.3U.S. Office of Personnel Management. Can I Roll Over My Refund of Retirement Contributions You then have 60 days to get the money into a qualifying account. To roll over the full amount, you have to replace that withheld 20 percent from your own pocket and reclaim it at tax time. Anything not rolled over inside 60 days is taxed as ordinary income.
The Deferred Annuity You Keep by Leaving Your Money In
If you leave your contributions in place and you completed at least five years of creditable civilian service, you are vested in a deferred annuity. Years of service decide when you can start collecting. Two tiers exist under 5 U.S.C. § 8413:
- Five or more years of service: you can start an unreduced annuity at age 62.4Office of the Law Revision Counsel. 5 USC 8413 – Deferred Retirement
- Ten or more years of service: you can start at your Minimum Retirement Age, but the annuity is permanently cut by 5 percent for every year you are under 62. Start at an MRA of 57 and you take a 25 percent reduction for life.5U.S. Office of Personnel Management. Types of Retirement
Those are the only two deferred options. You may see references to retiring with 20 years at age 60, or with 30 years at your MRA and no reduction. Those belong to 5 U.S.C. § 8412, the immediate retirement provisions that apply only to people who retire while still employed by the federal government. Once you have already resigned, those rules are off the table. This is the point where people miscalculate their retirement plans by tens of thousands of dollars, so worth being clear about.
Your MRA depends on your birth year and falls between 55 and 57. If you were born in 1970 or later, it is 57.6Office of the Law Revision Counsel. 5 USC 8412 – Immediate Retirement
How the Payment Is Calculated
The formula is 1 percent of your high-3 average salary multiplied by your years of creditable service.7Office of the Law Revision Counsel. 5 USC 8415 – Computation of Basic Annuity Your high-3 is the average of your highest basic pay over any three consecutive years, usually the last three you worked. Overtime, bonuses, and locality adjustments above basic pay do not count.
There is a more generous 1.1 percent multiplier, but it applies only to employees who retire at 62 with at least 20 years under § 8412’s immediate retirement provisions. If you quit and later collect a deferred annuity at 62, you get 1.0 percent, not 1.1. On a $90,000 high-3 with 20 years of service, that gap is $1,800 a year for the rest of your life.
The Bridge Payment You Do Not Get
Federal employees who retire early under certain immediate retirement rules receive a Special Retirement Supplement that fills the income gap until Social Security starts. If you quit and later claim a deferred annuity, you are not eligible for the supplement.5U.S. Office of Personnel Management. Types of Retirement Plan around this if you were counting on income before age 62.
Your TSP Stays Yours (Mostly)
Your Thrift Savings Plan account belongs to you no matter when you leave. If the balance is $200 or more, you can leave the money in the TSP indefinitely and keep the low-fee investment options.8Thrift Savings Plan. Withdrawals in Retirement You can also roll it to an IRA or a new employer’s 401(k), or take cash. Cash out and you owe ordinary income tax on the full amount, plus a 10 percent early withdrawal penalty if you are under 59½.
Watch the vesting trap. Your own contributions and the agency matching (up to 4 percent of pay) are always 100 percent yours. But the automatic 1 percent agency contribution needs three years of federal service to vest. Quit before that and the automatic contributions plus their earnings are forfeited back to the plan.9Thrift Savings Plan. TSP Vesting Requirements A few positions vest at two years, but three is the standard.
Social Security Credits Travel With You
FERS employees pay Social Security taxes on every paycheck, unlike workers under the older Civil Service Retirement System.10Social Security Administration. Social Security Benefits for Federal Workers The credits you earned as a federal employee are permanently yours. Move to a private-sector job and you simply keep earning credits under the same Social Security number. All your earnings, federal and non-federal, get combined when Social Security calculates your benefit later.
Health and Life Insurance End Quickly
Federal Employees Health Benefits coverage stops when you leave, but you get a 31-day extension at no cost after your last pay period.11U.S. Office of Personnel Management. As a Former Employee, Am I Eligible for a 31-Day Extension of Coverage After that, you have two options.
Temporary Continuation of Coverage lets you keep your FEHB plan for up to 18 months. You pay the full premium (both the employee share and what the government used to cover) plus a 2 percent administrative charge. That typically runs two to three times what you paid as an active employee. Enroll within 60 days of separation or 60 days of your agency’s TCC notice, whichever is later.12U.S. Office of Personnel Management. Temporary Continuation of Coverage Compare the TCC premium against a marketplace plan or a new employer’s coverage before you commit, because TCC is not always the cheapest.
Federal Employees’ Group Life Insurance also ends when you separate, with the same 31-day free extension. You then have a limited window to convert group coverage to an individual cash-value policy without a medical exam.13U.S. Office of Personnel Management. What Is a Conversion Policy – Who Is Eligible to Convert Their FEGLI Life Insurance Benefit The deadline is generally 60 days after the terminating event or 31 days after your agency notifies you, whichever comes first. The converted policy is cash-value, not term, and premiums are usually much higher than what FEGLI charged. Healthy people can often find cheaper term coverage on the open market. The conversion right is most valuable for someone with health conditions that would make new coverage expensive or impossible.
What Happens to Your Unused Leave
You get a lump-sum payment for unused annual leave, calculated as what you would have earned had you stayed employed for the hours in your balance.14U.S. Office of Personnel Management. Fact Sheet – Lump-Sum Payments for Annual Leave Only annual leave is cashed out. Sick leave, military leave, and home leave are not. The payment can take several months to arrive depending on agency processing.
Sick leave has a split fate. If you take the refund and cut all ties with the federal system, your sick leave balance disappears. If you leave your contributions in and eventually claim a deferred annuity, unused sick leave is credited toward your total service time for the annuity calculation.15U.S. Office of Personnel Management. Creditable Service It does not help you cross the five-year or ten-year vesting lines, but once you are eligible, it slightly increases the annuity.
If You Come Back to Federal Work Later
Return to a FERS-covered job and the rules depend on what you did with your contributions when you left.
Left them in? Your previous service picks up where it left off. Nothing more to pay.
Took the refund? You can make a redeposit to restore credit for that earlier service. The redeposit is the refund amount plus interest, charged from the midpoint of the service period and compounded annually.16U.S. Office of Personnel Management. Service Credit The 2026 interest rate is 4.25 percent. The longer you wait, the more it costs. Someone who took a $15,000 refund and returns ten years later could owe several thousand dollars in interest on top of the original amount. You can pay through payroll deductions or a lump sum.
Also, if you cashed out annual leave and return before the period covered by that payment expires, you have to repay part of the lump sum, and the corresponding hours go back on your leave balance.14U.S. Office of Personnel Management. Fact Sheet – Lump-Sum Payments for Annual Leave
The Forms and Where They Go
For a refund, file SF 3106 (Application for Refund of Retirement Deductions) with OPM.1U.S. Office of Personnel Management. Application for Refund of Retirement Deductions For a deferred annuity, file Form RI 92-19 (Application for Deferred or Postponed Retirement) when you actually reach the age at which payments can begin, not when you resign. Both forms are on OPM’s website or available through your agency’s HR office. Applications go to OPM’s Retirement Operations Center in Boyers, Pennsylvania, and once received you get a CSA claim number for tracking.
Keep copies of your final Leave and Earnings Statement, your SF-50 documenting separation, and any correspondence from OPM. If a discrepancy surfaces years later when you file for the annuity, those records are the fastest way to fix it.