You’ve spent years contributing to FERS, building what you hoped would become a solid foundation for retirement. Now you’re considering leaving federal employment, and you need to understand what happens to FERS if you quit before making this important career decision. The choices you make about your accumulated benefits can impact your financial security for decades to come.
Provide a scenario-based guide to what happens to FERS contributions and service time when a federal employee resigns, including refunds, deferred retirement, and keeping time in the system.
What Happens To FERS If You Quit?
When you quit your federal job, you face two primary options: take a refund of your personal FERS contributions or leave your money in the system to preserve your eligibility for future retirement benefits.
Your choice depends heavily on whether you’ve completed five years of federal service, which determines your vested status. Non-vested employees typically must take a refund, while vested employees can choose the option that best fits their long-term financial goals and career plans.
Understanding FERS Vesting And Your Options
Your years of federal service determine everything about your available choices when you leave government employment. FERS requires five years of creditable civilian service before you become vested, meaning you’ve earned the right to receive retirement benefits even after leaving federal employment.
During your federal career, you’ve been contributing a percentage of each paycheck to FERS. Employees hired before 2013 typically contribute 0.8% of their salary, while those hired after 2013 usually contribute higher rates. These personal contributions, combined with government matching funds and investment earnings, create your total retirement account balance over time.
If you haven’t reached the five-year vesting threshold, your options become quite limited. You can only receive a refund of your personal contributions plus accrued interest, but without any government matching funds. The federal system includes this limitation because you haven’t met the minimum service requirement to earn full retirement benefits.
Vested employees have much more flexibility. You can choose immediate access to your money through a refund, or you can preserve your future retirement benefits by leaving your contributions in the system. This decision carries substantial long-term financial implications that extend far beyond the immediate choice.
The government’s contributions to your retirement don’t actually become yours until you achieve vested status. These matching funds often exceed your personal contributions when you factor in investment growth over multiple years, representing a substantial portion of your total retirement benefit.
Taking A Full Refund Of Your Contributions
Choosing a refund means you receive all your personal FERS contributions plus accrued interest, but you permanently surrender all rights to future FERS retirement benefits. This option provides immediate cash access while completely severing your connection to the federal retirement system.
Your refund includes only what you personally contributed and the interest those contributions earned. You forfeit the government’s matching contributions and any investment growth those funds might have generated. Non-vested employees typically have no other choice, but vested employees can also select this option if they prefer immediate liquidity.
Tax implications require careful consideration since the entire refund becomes taxable income in the year you receive it. You might also face early withdrawal penalties if you’re under age 59½, similar to other retirement account distributions. The IRS treats these refunds as ordinary income, potentially pushing you into a higher tax bracket for that tax year.
Many financial advisors suggest rolling the refund into an Individual Retirement Account (IRA) to avoid immediate tax consequences while preserving the money’s retirement purpose. This strategy maintains the tax-deferred status of your retirement savings while giving you more control over investment choices and withdrawal timing.
The refund option often makes sense for employees with minimal federal service time or those facing financial emergencies requiring immediate access to funds. However, you should calculate the total value you’re abandoning, including potential future benefits, before committing to this irreversible choice.
Leaving Your Money In FERS For Future Benefits
Vested employees can choose to leave their FERS contributions in the system, maintaining eligibility for deferred retirement benefits while preserving their service credit. This option allows your account to continue earning interest even though you’re no longer making contributions or working for the federal government.
By keeping your money in FERS, you maintain the right to receive monthly retirement payments once you reach the minimum retirement age. This minimum retirement age typically falls between 55 and 57 depending on your birth year, making this option particularly valuable for younger federal employees who don’t need immediate access to their contributions.
Your future deferred benefits will be calculated based on your years of service and your “high-3” average salary at the time you left federal service. While this amount won’t increase for inflation or salary growth after your departure, it still provides a guaranteed income stream in retirement that disappears if you take the refund.
This choice makes the most sense for employees with substantial federal service time or those who might return to federal employment later in their careers. Your preserved service credit becomes valuable if you decide to rejoin the federal workforce, as it counts toward your total years of service for retirement calculations.
The compound effect of leaving your money in the system can be substantial over time. Your contributions continue earning interest at competitive rates, and you maintain eligibility for the government’s portion of your retirement benefits that would be permanently lost with a refund.
How Deferred FERS Retirement Actually Works
Deferred FERS retirement allows you to collect monthly pension payments starting at your minimum retirement age, even if you haven’t worked for the federal government for years. The monthly amount uses the same calculation formula as immediate retirement: 1% of your high-3 average salary multiplied by your years of service, or 1.1% if you retire at age 62 or later with 20 or more years of service.
However, deferred retirement comes with important limitations you must understand. You cannot access these benefits before your minimum retirement age without facing substantial penalties, and you won’t qualify for the Federal Employees Health Benefits program or Federal Employees Group Life Insurance as a deferred retiree unless you later return to federal service.
The timing for starting your deferred benefit collections depends on your years of service when you left federal employment:
- With five to 10 years of service, you must wait until age 62 to begin receiving benefits.
- With 10 to 20 years of service, you can start at age 60.
- With 20 or more years of service, you can begin at your Minimum Retirement Age (MRA), typically between 55 and 57.
These rules make deferred retirement most valuable for employees with substantial federal service time. Your monthly payment amount remains fixed based on your service and salary when you left federal employment.
Impact On Your Other Federal Benefits
Leaving federal employment affects your retirement benefits beyond just FERS, though in different ways for each program. Your Social Security benefits aren’t directly impacted by quitting your federal job. FERS employees pay Social Security taxes and earn credits toward Social Security retirement, disability, and survivor benefits just like private sector employees.
Your Thrift Savings Plan (TSP) account remains entirely yours regardless of your FERS decision. You can leave the money in TSP, roll it to another employer’s 401(k), or transfer it to an Individual Retirement Account. TSP often provides excellent low-cost investment options, so many former federal employees choose to leave their accounts intact while continuing to manage their investments through the TSP system.
If you took a FERS refund, you lose the coordination between FERS and Social Security that provides the Social Security supplement for certain early retirees. This supplement can provide substantial income for federal retirees who begin collecting FERS benefits before becoming eligible for Social Security at age 62.
The Social Security supplement equals the amount you would receive from Social Security based on your federal service, paid from your retirement until age 62 when you become eligible for actual Social Security benefits. Losing this benefit by taking a refund can represent thousands of dollars in lost retirement income for those who might have qualified.
TSP contribution limits and matching opportunities end when you leave federal service, but your existing account continues growing based on your investment choices and market performance. Many former federal employees appreciate TSP’s low administrative fees and diverse investment options compared to typical private sector retirement plans.
Special Situations To Consider
Several circumstances can greatly affect your FERS options when leaving federal employment. If you’re transferring to another federal agency or to a job covered by a different federal retirement system, you may be able to maintain your FERS benefits without interruption, depending on the specific transfer rules and timing requirements.
Federal employees who return to government service after taking a refund can buy back their previous service time by repaying the refund amount plus interest. However, the interest charges can become substantial if time passes between the refund and the redeposit, sometimes doubling or tripling the original amount.
Military service members who later become federal civilian employees have special rules for combining their military time with federal civilian service. These rules differ substantially for military retirees versus non-military retirees, affecting how military service counts toward federal retirement calculations.
Temporary and seasonal workers may have different rules regarding their FERS contributions and vesting requirements. These employees should verify their specific situation with their human resources office since their employment status can affect their retirement benefit calculations and available options.
The redeposit process for returning employees requires you to pay back not just the refund amount, but also interest calculated from the date you received the refund until the date you repay it. This interest compounds over time, making early returns to federal service much more affordable than later ones if you’re considering this possibility.
If your situation involves legal nuance—such as disputes over service computation, eligibility, or complex redeposit calculations—consider consulting a FERS retirement lawyer who specializes in federal benefits to protect your rights and maximize outcomes.
Key Action Items (What You Should Do Next)
- If you have less than five years of service: expect to receive only a refund of your personal contributions plus interest.
- If you’re vested (5+ years): carefully compare the lifetime value of deferred FERS benefits vs. the immediate cash of a refund.
- Before taking a refund: calculate tax consequences and consider rolling the refund into an IRA to preserve tax deferral.
- If you might return to federal service: understand redeposit requirements and interest charges so you can estimate the true cost of buying back service.
- Contact your HR office or a trusted financial advisor for personalized estimates of deferred retirement amounts, refund values, and TSP rollover options.
- If you need legal guidance on FERS rules or disputes, reach out to a qualified FERS retirement attorney to review your case and options.
Bottom Line
Quitting federal employment forces a choice between immediate cash and preserving a guaranteed retirement income stream. The most impactful factors are whether you’re vested (five years), whether you need immediate liquidity, and whether you might return to federal service. Carefully evaluate tax consequences, lost government contributions, and long-term retirement income before deciding. If in doubt, leave your contributions in FERS or roll any refund into an IRA until you can make an informed, long-term decision.
Talk With a Federal Employment Attorney About Your Options
At The Law Office of Justin Schnitzer, we focus exclusively on federal employment law and the real people behind every case. We understand how stressful it is to face discipline, discrimination, retaliation, or other career‑threatening issues, and we’re here to help you move into a more stable chapter of your life.
When your career or income is at risk, it helps to speak with someone who knows how this system actually works. Our federal employment attorneys will review your situation, explain your options in an easy-to-understand language, and help you decide on a next step that fits your goals. We offer virtual appointments so you can get clear guidance from the comfort of your home.
We’re proud of the trust our clients place in us. We encourage you to read our client reviews and see how we’ve helped other federal employees in situations like yours.
To talk through your situation and get a plan you can feel confident about, contact us today or call 202-964-4878 to schedule your initial consultation.
