What Happens if I Leave Federal Service?
Leaving federal service isn’t an easy step to take, and you’ll have to weigh all the details carefully. In some cases, the choice is not all that difficult: better hours and pay, closer commuting, better benefits, etc. However, in other cases, the decision may be a bit tougher to make. In those cases, one question that people always have is “What happens to my annuity if I leave federal service?” Great question!
The options you have leaving federal service are not all that different from leaving a private sector job. Leaving federal service before you are eligible for retirement leaves you with a couple different options.
- You can request that your retirement contributions be returned to you in a lump sum payment.
- You can take a deferred retirement if you have at least 5 years of creditable service, and if you don’t ask for a refund on your contributions.
If you would like a refund on your retirement contribution, you need to get an application from your personnel office. Submit it directly to your agency’s personnel office if you have been separated less than 30 days. If you’ve been separated more than 30 days, you will need to submit that application directly to OPM.
Interest
The interest payable on the lump sum of your contributions varies depending on which retirement system you worked under. Under the FERS system, you will get interest on the refund of the contributions if you worked more than a year. The interest is paid at the same rate as government securities. For employees who had any service under the CSRS system, the interest is included in the refund of the contributions if you have more than one year but less than 5 years of service. The interest is paid out at 3 percent.
Rollover
Another option is the rollover option. Former federal employees can choose to rollover their lump sum payments. These payments represent your retirement contributions and any applicable interest. Eligible payments are made either to you or directly to an IRA or employee-sponsored plan. However, be aware that the choice affects the taxes owed. Federal income tax is withheld from taxable payments over $200 at 20 percent. All or part of these payments can be directly rolled over. The taxable portion can be rolled over into a TSP. If this is the option you choose, no Federal income tax will be withheld. You may roll over any amount you wish and you are taxed on any amount not rolled over at 20 percent.
For more information on how leaving federal service affects your annuity, visit www.opm.gov.
