Leaving Federal Government - What to do with retirement (FERS) contributions?

[Invest_Wisely]

I will be leaving my federal government job at the end of the month after less than five years of federal service. I need to decide what to do with my retirement (FERS) contributions upon leaving. I have the option of requesting a lump sum refund payment (with interest) of these deductions or leaving the deductions in the retirement fund in case I return to the federal government. The refund payment of contributions is not taxed, however, the interest on the contributions are.

I'm leaning toward requesting the refund, as I think chances are higher I don't return to federal service, but I can't completely rule it out. What are other's thoughts on this? If I request a refund, how should I handle it? I assume I'll have to move it into a taxable account or into a backdoor roth.

I'm married filing jointly, one child, 24% marginal tax rate, and no debt besides the home mortgage.

[Soon2BXProgrammer]

This isn't my guide and it's going to change a bit when the TSP changes.

But a common thing is to roll your contributions to a Roth IRA since they had been "after-tax" contributions and then the interest earned to a pretax account like the TSP.

https://gist.github.com/monfresh/d92dc0 ... 3e7ce07214

[SR II]

I will be leaving my federal government job at the end of the month after less than five years of federal service. I need to decide what to do with my retirement (FERS) contributions upon leaving. I have the option of requesting a lump sum refund payment (with interest) of these deductions or leaving the deductions in the retirement fund in case I return to the federal government. The refund payment of contributions is not taxed, however, the interest on the contributions are.

I'm leaning toward requesting the refund, as I think chances are higher I don't return to federal service, but I can't completely rule it out. What are other's thoughts on this? If I request a refund, how should I handle it? I assume I'll have to move it into a taxable account or into a backdoor roth.

I'm married filing jointly, one child, 24% marginal tax rate, and no debt besides the home mortgage.

Wow! I never even knew this was an option. I worked for the federal government for just over four years (March 2008 to May 2012) and paid into FERS. I wonder if it is too late to apply for a refund of contributions? I've just printed out the form from OPM.gov (https://www.opm.gov/forms/pdf_fill/sf3106.pdf) and will certainly look into it. Thank you!

[texasdiver]

This isn't my guide and it's going to change a bit when the TSP changes.

But a common thing is to roll your contributions to a Roth IRA since they had been "after-tax" contributions and then the interest earned to a pretax account like the TSP.

https://gist.github.com/monfresh/d92dc0 ... 3e7ce07214

Are you sure the FERS contribution are "after tax?" I'm pretty sure they are pre-tax.

[Soon2BXProgrammer]

This isn't my guide and it's going to change a bit when the TSP changes.

But a common thing is to roll your contributions to a Roth IRA since they had been "after-tax" contributions and then the interest earned to a pretax account like the TSP.

https://gist.github.com/monfresh/d92dc0 ... 3e7ce07214

Are you sure the FERS contribution are "after tax?" I'm pretty sure they are pre-tax.

I am 100% sure that employee FERS contributions are after tax.

Lots of good information in this publication:
https://www.irs.gov/pub/irs-pdf/p721.pdf

[Swansea]

I do not see a downside to taking the refund. It may be redeposited with interest if you return and get 5 years of service.
From FedWeek:

One situation in which taking a refund may make the most sense: If you have less than five years of service and expect you’ll never return to the government to reach that number, leaving the money in the system essentially means forfeiting it. If you take a refund on those grounds and do later return to work for the government despite your earlier expectation, you’d need to redeposit that amount plus interest to get credit for that prior time in your annuity computation.

[rich126]

I didn't realize you had the option of leaving them with the government. I thought you had to been an employee 5 years to get vested in the system. I know it is 3 years to get vested in the matching 401K money.

Personally I would always keep it with the government in case you return. My case was a lot different because I left after 15 years but after being gone for about a decade, I came back and I was very glad I didn't take it out. Usually the amount refunded isn't that significant especially with 5 yrs or less of service time.

And while it may be likely you don't ever return I know many that have.

[doss]

I will be leaving my federal government job at the end of the month after less than five years of federal service. I need to decide what to do with my retirement (FERS) contributions upon leaving. I have the option of requesting a lump sum refund payment (with interest) of these deductions or leaving the deductions in the retirement fund in case I return to the federal government. The refund payment of contributions is not taxed, however, the interest on the contributions are.

I'm leaning toward requesting the refund, as I think chances are higher I don't return to federal service, but I can't completely rule it out. What are other's thoughts on this? If I request a refund, how should I handle it? I assume I'll have to move it into a taxable account or into a backdoor roth.

I'm married filing jointly, one child, 24% marginal tax rate, and no debt besides the home mortgage.

I left federal service in 2012 with less than 5 years service, as well. I don't recall requesting a lump sum refund payment of FERS contributions. Maybe I should look into this! But, I have no idea where to even start. I do have access to TSP.org. Is there something in there where I can get an idea of the amount ?

I did find my old SF50.

[Dusn]

If you’re young is FERS even worth it if you need to contribute 4.4% of your post-tax salary each year. You’d have to do the exact calculations but you may be able do as well just investing that money in the stock market.

So I think the decision would depend partly on your current age. That and the healthcare benefit seem far more beneficial if you join the gov closer to age 60.

[rkhusky]

If you’re young is FERS even worth it if you need to contribute 4.4% of your post-tax salary each year. You’d have to do the exact calculations but you may be able do as well just investing that money in the stock market.

So I think the decision would depend partly on your current age. That and the healthcare benefit seem far more beneficial if you join the gov closer to age 60.

Contributing to FERS is not optional.
Here is a brief analysis of the benefit for someone who stays in the government for 30 years:
https://www.fedsmith.com/2016/03/16/can-i-opt-out-fers/

[moglehead]

This isn't my guide and it's going to change a bit when the TSP changes.

But a common thing is to roll your contributions to a Roth IRA since they had been "after-tax" contributions and then the interest earned to a pretax account like the TSP.

https://gist.github.com/monfresh/d92dc0 ... 3e7ce07214

Are you sure the FERS contribution are "after tax?" I'm pretty sure they are pre-tax.

I am 100% sure that employee FERS contributions are after tax.

Lots of good information in this publication:
https://www.irs.gov/pub/irs-pdf/p721.pdf

From page two: "This plan is similar to private sector 401(k) plans. You can defer tax on part of your pay by having it contributed to your traditional balance in the plan. The contributions and earnings on them aren't taxed until they are distributed to you."

[pahkcah]

To eliminate any confusion with terminology, the Federal Employees Retirement System (FERS) is the overall retirement plan. Per OPM, "FERS is a retirement plan that provides benefits from three different sources: a Basic Benefit Plan, Social Security and the Thrift Savings Plan (TSP)."

The OP asked for information on the Basic Benefit Plan, which is the "pension piece" of the overall FERS three-legged plan. Maybe a better way of stating the post title would have been, "...What to do with the FERS pension contributions?"

[Soon2BXProgrammer]

This isn't my guide and it's going to change a bit when the TSP changes.

But a common thing is to roll your contributions to a Roth IRA since they had been "after-tax" contributions and then the interest earned to a pretax account like the TSP.

https://gist.github.com/monfresh/d92dc0 ... 3e7ce07214

Are you sure the FERS contribution are "after tax?" I'm pretty sure they are pre-tax.

I am 100% sure that employee FERS contributions are after tax.

Lots of good information in this publication:
https://www.irs.gov/pub/irs-pdf/p721.pdf

From page two: "This plan is similar to private sector 401(k) plans. You can defer tax on part of your pay by having it contributed to your traditional balance in the plan. The contributions and earnings on them aren't taxed until they are distributed to you."

That is under the heading TSP not a FERS/CSRS box.

[Soon2BXProgrammer]

I left federal service in 2012 with less than 5 years service, as well. I don't recall requesting a lump sum refund payment of FERS contributions. Maybe I should look into this! But, I have no idea where to even start. I do have access to TSP.org. Is there something in there where I can get an idea of the amount ?

I did find my old SF50.

Based on the date, you probably had been under FERS (not FERS-RAE or FERS-FRAE) (all three are the same basic plan, but congress decided later employees had to pay a higher percentage contributions) For some exact dates and rules you can reference; https://www.fedsmith.com/2014/04/07/fer ... this-mean/

This would mean they would have probably withheld .8% of your salary for the FERS benefit. On most modern "Leave and earning statements" the payroll provider has a running total about how much "Ret deductions this appointment" or something similar. Not sure how you can figure out the amount unless you have your old W2's that you can do some basic .8% math.

Then it would also have interest credits.

Just file a SF3106

[rkhusky]

This isn't my guide and it's going to change a bit when the TSP changes.

But a common thing is to roll your contributions to a Roth IRA since they had been "after-tax" contributions and then the interest earned to a pretax account like the TSP.

https://gist.github.com/monfresh/d92dc0 ... 3e7ce07214

Are you sure the FERS contribution are "after tax?" I'm pretty sure they are pre-tax.

I am 100% sure that employee FERS contributions are after tax.

Lots of good information in this publication:
https://www.irs.gov/pub/irs-pdf/p721.pdf

+1

When a FERS employee begins receiving pension checks, the contribution amount is subtracted from the total to compute the taxable amount.

[HueyLD]

There might be a problem when your FERS contribution was not withdrawn after you left.

The OPM may lose your record by claiming that you had withdrawn the money even though you had not. That could happen if your employment gap is more than one decade.

A family member quit federal employment and decided to check the status of his FERS contribution remained with the federal government after about 20 years. Well, he was told by an OPM employee that his money was withdrawn many years ago per their records. And he knew for certain that the money was never touched.

As one could imagine, it took quite a bit of effort to overcome the bureaucracy and he almost gave up on claiming the money. Yuck!

[chemocean]

I will be leaving my federal government job at the end of the month after less than five years of federal service. I need to decide what to do with my retirement (FERS) contributions upon leaving. I have the option of requesting a lump sum refund payment (with interest) of these deductions or leaving the deductions in the retirement fund in case I return to the federal government. The refund payment of contributions is not taxed, however, the interest on the contributions are.

I'm leaning toward requesting the refund, as I think chances are higher I don't return to federal service, but I can't completely rule it out. What are other's thoughts on this? If I request a refund, how should I handle it? I assume I'll have to move it into a taxable account or into a backdoor roth.

I'm married filing jointly, one child, 24% marginal tax rate, and no debt besides the home mortgage.

I left federal service in 2012 with less than 5 years service, as well. I don't recall requesting a lump sum refund payment of FERS contributions. Maybe I should look into this! But, I have no idea where to even start. I do have access to TSP.org. Is there something in there where I can get an idea of the amount ?

I did find my old SF50.

The FERS refund is through OPM, not TSP. https://www.servicesonline.opm.gov/

[SR II]

I left federal service in 2012 with less than 5 years service, as well. I don't recall requesting a lump sum refund payment of FERS contributions. Maybe I should look into this! But, I have no idea where to even start. I do have access to TSP.org. Is there something in there where I can get an idea of the amount ?

I did find my old SF50.

I posted this link to the OPM FERS Refund form above: https://www.opm.gov/forms/pdf_fill/sf3106.pdf

Here is more information from the OPM website: https://www.opm.gov/retirement-services ... employees/

[SR II]

There might be a problem when your FERS contribution was not withdrawn after you left.

The OPM may lose your record by claiming that you had withdrawn the money even though you had not. That could happen if your employment gap is more than one decade.

A family member quit federal employment and decided to check the status of his FERS contribution remained with the federal government after about 20 years. Well, he was told by an OPM employee that his money was withdrawn many years ago per their records. And he knew for certain that the money was never touched.

As one could imagine, it took quite a bit of effort to overcome the bureaucracy and he almost gave up on claiming the money. Yuck!

Since I didn't even know a refund was a thing, I'd be pleased to get anything back after all these years!

[finite_difference]

I will be leaving my federal government job at the end of the month after less than five years of federal service. I need to decide what to do with my retirement (FERS) contributions upon leaving. I have the option of requesting a lump sum refund payment (with interest) of these deductions or leaving the deductions in the retirement fund in case I return to the federal government. The refund payment of contributions is not taxed, however, the interest on the contributions are.

I'm leaning toward requesting the refund, as I think chances are higher I don't return to federal service, but I can't completely rule it out. What are other's thoughts on this? If I request a refund, how should I handle it? I assume I'll have to move it into a taxable account or into a backdoor roth.

I'm married filing jointly, one child, 24% marginal tax rate, and no debt besides the home mortgage.

I left federal service in 2012 with less than 5 years service, as well. I don't recall requesting a lump sum refund payment of FERS contributions. Maybe I should look into this! But, I have no idea where to even start. I do have access to TSP.org. Is there something in there where I can get an idea of the amount ?

I did find my old SF50.

Back of the envelope calculation: 0.008 * total salary you received over the years.

If there’s a chance you go back to Federal service, I would probably leave it since then it will increase your pension by 1% * high-3 average salary * X years where X is the number of years worked.

So if you worked 3 years you’ll get an extra 3% of your high-3 salary in pension.

So if your high-3 is $100k at retirement, that’s $3k per year extra, indexed to inflation, until you die.

Or you could cash out and get 0.008 * $80k * 3 years = $1.92k if your salary averaged out to $80k.

[tj]

This isn't my guide and it's going to change a bit when the TSP changes.

But a common thing is to roll your contributions to a Roth IRA since they had been "after-tax" contributions and then the interest earned to a pretax account like the TSP.

https://gist.github.com/monfresh/d92dc0 ... 3e7ce07214

Are you sure the FERS contribution are "after tax?" I'm pretty sure they are pre-tax.

They are absolutely after tax. You don't get a tax deduction for contributing to FERS.

[Invest_Wisely]

This isn't my guide and it's going to change a bit when the TSP changes.

But a common thing is to roll your contributions to a Roth IRA since they had been "after-tax" contributions and then the interest earned to a pretax account like the TSP.

https://gist.github.com/monfresh/d92dc0 ... 3e7ce07214

Interesting! So can I roll this into an existing Roth I have with Vanguard even if we exceed the MAGI limits for 2022?

[tj]

This isn't my guide and it's going to change a bit when the TSP changes.

But a common thing is to roll your contributions to a Roth IRA since they had been "after-tax" contributions and then the interest earned to a pretax account like the TSP.

https://gist.github.com/monfresh/d92dc0 ... 3e7ce07214

Interesting! So can I roll this into an existing Roth I have with Vanguard even if we exceed the MAGI limits for 2022?

There are no MAGI limits that I'm aware of for Rollovers or Conversions.

[Soon2BXProgrammer]

This isn't my guide and it's going to change a bit when the TSP changes.

But a common thing is to roll your contributions to a Roth IRA since they had been "after-tax" contributions and then the interest earned to a pretax account like the TSP.

https://gist.github.com/monfresh/d92dc0 ... 3e7ce07214

Interesting! So can I roll this into an existing Roth I have with Vanguard even if we exceed the MAGI limits for 2022?

There are no MAGI limits that I'm aware of for Rollovers or Conversions.

You are correct @tj.

Yes @Invest_Wisely, it is common to convert the "aftertax contributions to the FERS defined benefit plan" to a Roth IRA, and split off any gains to either a pretax ira or the TSP pretax account. (or some other preetax account).

[texasdiver]

This isn't my guide and it's going to change a bit when the TSP changes.

But a common thing is to roll your contributions to a Roth IRA since they had been "after-tax" contributions and then the interest earned to a pretax account like the TSP.

https://gist.github.com/monfresh/d92dc0 ... 3e7ce07214

Are you sure the FERS contribution are "after tax?" I'm pretty sure they are pre-tax.

They are absolutely after tax. You don't get a tax deduction for contributing to FERS.

My mistake. I thought it was like other pensions that were deducted pre-tax from your paycheck.

[grabiner]

Back of the envelope calculation: 0.008 * total salary you received over the years.

This depends on when you started your job. It is 3.1% if you started in 2013 (FERS-RAE) and 4.4% if you started in 2014 or later (FERS-FRAE). Thus getting back the money now, rather than waiting for the potential of a small annuity at age 62, may be more desirable.

[Soon2BXProgrammer]

Back of the envelope calculation: 0.008 * total salary you received over the years.

This depends on when you started your job. It is 3.1% if you started in 2013 (FERS-RAE) and 4.4% if you started in 2014 or later (FERS-FRAE). Thus getting back the money now, rather than waiting for the potential of a small annuity at age 62, may be more desirable.

Also, if someone was military, they might have made a deposit of 3% of base pay earned (except earnings in 1999 are 3.25%, earnings in 2000 are 3.4%). https://www.opm.gov/retirement-services ... /#military So they could have made a large deposit, but then if they don't make 5 years of civilian service, they aren't eligible for a pension..

One can always re-redeposit (with interest) later.