There may be any number of reasons why you could be thinking about leaving your federal job before you meet retirement requirements under FERS. Understanding all of your options can help you make the best decision for your personal financial situation.
You Must Be “Vested” To Be Eligible For A Deferred Retirement
When you leave service early, you must be considered “vested” in FERS to be eligible to receive a monthly annuity (pension). This requires making FERS contributions for at least five years of civilian service and keeping all of your contributions in FERS.
If you take a lump sum refund on your FERS contributions when you separate from service, you’ll forfeit any annuity (pension) payments when you retire in the future. For most FERS participants, it’s usually better to leave your FERS contributions on deposit with the OPM than to withdraw a lump sum that will be subject to federal taxes as regular income.
Other federal benefits are also permanently affected when you take a deferred retirement. These include access to FEGLI and losing your eligibility for the FERS Special Retirement Supplement (SRS).
Understanding The Pros & Cons Of A Deferred Retirement
Though choosing a deferred retirement enables you to collect your FERS annuity with as little as five years of civilian service, if you’re close to meeting your MRA+10 you may want to consider working longer to avoid losing your FEHB eligibility. Otherwise, when you turn 65, your only options are traditional Medicare (plus a gap insurance plan) or Medicare Advantage. Other federal benefits are also permanently affected when you take a deferred retirement. These include access to FEGLI and losing your eligibility for the FERS Special Retirement Supplement (SRS).
Understanding What Happens To Your Thrift Savings Plan (TSP)
When you separate from service before you’re eligible to retire under FERS, you have the same TSP withdrawal choices you would have had if you waited until your Minimum Retirement Age (MRA). Your choices include taking TSP distributions when you retire, purchasing a TSP annuity, or transferring your TSP balance to another qualified retirement account. When you leave your money in your TSP account until retirement, your savings will continue to earn dividends. Or, you may want to wait until you must take Required Minimum Distributions (RMDs) at age 72 (or 73 if you’ve turned 72 after Dec. 31, 2022).
If you leave service with an outstanding TSP loan, you can either pay it back or take the balance owed as a taxable distribution. However, you won’t be able to take any TSP distributions until the loan is satisfied.
Before making a final decision, consult with an FRC® trained advisor who can help you weigh the pros and cons of your options.
