Leaving federal service with fewer than 5 years: your money, your options, and what you forfeit
Federal retirement runs on one hard threshold: five years of creditable civilian service. Cross it and you’re vested — entitled to a pension for life. Leave one day short and you’re not vested, with no FERS annuity from that service, ever — not immediate, not deferred. That doesn’t mean you walk away empty-handed. You have a real decision: take a refund of your own contributions, or leave them on deposit in case you return. The right answer turns on your hire-year contribution rate, the redeposit rule, and one thing that’s yours no matter what — your TSP. Here’s the whole picture, with a refund calculator.
1. The five-year line
Vesting in the FERS basic annuity requires five years of creditable civilian service — and it must be actual civilian service. Military time and unused sick leave don’t count toward reaching five years (they can add value after you’re vested, but not to get you there). Hit five years and you’ve earned a pension you can claim later even if you leave decades early. Fall short and, for that period of service, there is no pension to claim.
2. What “not vested” forfeits
Leaving with fewer than five years means you lose access to several things tied to a retirement-eligible separation:
- The pension itself — no immediate annuity, and no deferred annuity at 62.
- FEHB in retirement — you can’t carry health coverage into retirement without a retirement.
- The government’s pension contributions — the agency’s share of what funded your future annuity is forfeited; only your money is refundable.
- Sick-leave credit — unused sick leave adds to a real retirement; there’s no retirement here to add it to.
The good news: what you personally paid in is recoverable, and your TSP is untouched. The decision is what to do with your contributions.
3. Option A: take the refund
You can request a refund of your FERS retirement contributions on Standard Form 3106. It returns the money you paid into the Basic Benefit Plan, plus interest if you had more than one year of service (at the government-securities rate). It does not include the government’s share.
Your contributions were already taxed, so the principal isn’t taxed again — only the interest portion is taxable. You can roll the entire lump sum into an IRA or another employer plan to defer tax on the interest and keep the money growing. To qualify for a refund you must be separated at least 31 days, not reemployed in a covered position, and ineligible for an immediate annuity.
4. Option B: leave it on deposit
You’re not required to take the money. Left in the fund, your contributions keep accruing interest at the market rate. There’s no deferred annuity waiting for you (you’re under five years), so the reason to leave it in is optionality: if you return to federal service, that prior service stays on the books and helps you build toward the five-year vesting threshold. If you die before any future eligibility, the balance is paid to your beneficiary as a lump sum.
5. The redeposit rule
Under a 2009 law (PL 111-84), employees covered by FERS on or after October 28, 2009 can redeposit refunded FERS contributions if they return to federal service — restoring that service toward the annuity. If you take a refund, return, and don’t redeposit, the old service still counts toward eligibility (title) and your high-3, but not toward computing the pension. Historically, pre-2009 FERS refunds could never be bought back at all. The practical rule: if there’s a realistic chance you’ll return, leaving the money in avoids a future redeposit-plus-interest bill.
6. Your TSP is separate
Don’t confuse the two systems. The TSP has nothing to do with FERS five-year vesting. Your own TSP contributions and their earnings are always yours, and agency matching contributions vest immediately. The one piece with its own schedule is the automatic 1% agency contribution, which typically vests after three years of service. So even leaving non-vested for the pension, you keep your full TSP (minus the auto-1% if you’re under three years) and can roll it into an IRA or a new 401(k). Cashing it out before 59½ triggers the 10% early-withdrawal penalty plus taxes — rolling over avoids both.
7. Estimate your refund
Your refund is roughly your contribution rate times your pay over the period. The rate depends on your hire year — pick your tier.
Your service
Approximate: contributions = rate × pay over the period, plus interest if over one year of service (not modeled). The government’s pension share isn’t refundable; your TSP is separate and stays yours. Roll the refund to an IRA to defer tax on the interest. Estimate, not advice.
8. How to decide
(1) Will you ever return to federal service? If truly no — take the refund and roll it into an IRA; non-vested service pays you nothing anyway. If maybe — lean toward leaving it on deposit to preserve the path to vesting and avoid a redeposit bill later. (2) How big is your refund? A pre-2013 hire’s few thousand dollars is a rounding error; a post-2014 hire’s five-figure balance is worth a deliberate rollover decision. Either way, get an official estimate from your personnel office before filing SF-3106, and don’t touch your TSP — roll it, don’t cash it.
9. Frequently asked questions
What does it mean to not be vested in FERS?
Vesting in FERS means you’ve earned the right to a pension. It takes five years of creditable civilian service. If you leave with fewer than five years, you are not vested in the FERS basic annuity — which means you cannot receive a pension from that service, not an immediate one and not a deferred one at 62. Only actual civilian service counts toward the five years; military time and unused sick leave don’t count toward reaching the threshold (though they can count once you’re already vested).
Can I get my money back if I leave before 5 years?
Yes — you can request a refund of your own FERS retirement contributions using Standard Form 3106. The refund returns the money you personally paid into the Basic Benefit Plan, plus interest if you had more than one year of service (paid at the government-securities rate). It does not include the government’s share. Your contributions aren’t taxable, but the interest portion is, and you can roll the lump sum into an IRA or another employer plan to avoid current tax and keep it growing.
Should I take the refund or leave my contributions on deposit?
If you’re confident you’ll never return to federal service, taking the refund is often reasonable — it’s your money, and non-vested service earns you no pension anyway. If there’s any chance you’ll return, consider leaving the contributions on deposit: they keep accruing interest, and preserving the service can help you build toward the five-year vesting threshold later. Note that if you take a refund and later return, you generally must redeposit the money plus interest to get that service credited toward your annuity.
Do I lose my TSP if I'm not vested in FERS?
No. The TSP is entirely separate from the FERS pension and its five-year vesting rule. Your own TSP contributions and their earnings are always yours, and agency matching contributions are immediately vested. The only piece with its own vesting schedule is the automatic 1% agency contribution, which typically vests after three years of service. So even if you leave non-vested for the pension, you keep your full TSP balance and can roll it into an IRA or a new employer’s 401(k) — a cash-out before 59½ triggers a 10% penalty plus taxes.
How much bigger is the refund for newer hires?
Much bigger, because the contribution rate depends on when you were hired. Employees hired before 2013 contribute 0.8% of pay; those hired in 2013 (FERS-RAE) contribute 3.1%; and those hired in 2014 or later (FERS-FRAE) contribute 4.4%. Over five years at an $80,000 salary, a pre-2013 hire’s refund is roughly $3,200, while a post-2014 hire’s is around $17,600. For newer hires, the refund is a meaningful sum, which makes rolling it into a Roth or traditional IRA a more consequential decision than it was for earlier hires.