Federal Employee Transition Fact Sheet

Author – Spencer Turkal

The purpose of this post is to provide facts surrounding the transition away from federal employment.  It is not an all encompassing list and this post should not constitute individualized or general advice.  It also is only updated as of May 11th, 2025.  This post is primarily used in conjunction with conversations or workshops that Spencer and Joe have but please feel free to use at your own convenience.

TSP Basics

• Functions very similarly to most 401(k)/403(b)/401(a)/etc. plans.

 

• Your federal agency contributes 1% of your salary and with match 100% of the first 3% that you contribute and 50% of the next 2 that you contribute (your agency will put in 5% if you contribute 5%).

 

• FERS participants must complete three years of civilian service (two years for certain non-career positions) to vest in agency contributions. If an employee separates before vesting, the agency automatic and matching contributions and associated earnings are forfeited

 

 

• There are 5 main investment options along with lifecycle funds:
  • C Fund which serves to replicate the performance of large cap stocks (large U.S. companies)
  • S Fund which seeks to replicate the performance of small cap stocks (smaller U.S. companies)
  • I Fund which seeks to replicate the performance of international companies minus China and Hong Kong
  • F Fund which seeks to replicate the performance of high-quality bonds
  • G Fund which seeks to create similar performance to short-term treasuries
  • Lifecycle Funds are funds that combine all 5 above funds and create a mix that is designed for a specific retirement date (known as target-date funds).

 

• TSP offers two types of loans: general purpose and residential
  • General purpose can be used for any reason and must be paid back within 1-5 years. Residential must have documentation that it is being used for construction or purchase of a primary residence and must be paid back within 1-15 years.
  • Must be an active employee to take a new TSP loan
  • If separated from service, it is important to be proactive in arranging repayments.
  • Unpaid TSP loans will result in the remaining balance being declared a “taxable” distribution which may have tax consequences and penalties.

 

TSP after transition

• 3 options
  • Keep investments in TSP
    • 5 fund options and lifecycle funds
    • Doesn’t give a great ability to diversify and not great for withdrawals
    • Can take TSP Loans*

 

• • Transfer into new employer plan (401(k)/403(b)/etc.)
    • May be better or worse depending on how new employer set up plan
    • Consolidates accounts (easier to manage 1 account rather than 2)
    • May or may not offer 401(k) loans
    • Combining accounts does not affect growth (outside of just being invested differently). Whether the assets are in one account or multiple, they will compound at the same rate.

 

• • Transfer into Individual Retirement Arrangement (IRA)
    • Allows for the most flexibility in terms of investment options
    • May interfere with doing backdoor Roth IRA contributions
    • Cannot take IRA loans

 

FERS Basics

• Those hired before 2013 generally contribute 0.8% of their salary, those hired in 2013 generally contribute 3.1% and those hired after 2013 generally contribute 4.4%.
• Special category employees (such as air traffic controllers, federal law enforcement officers, firefighters, etc.) contribute an extra 0.5% of their pay.

 

• For those retiring at age 60 with at least 20 years of service, at MRA with at least 30 years of service, as a special category employee or those retiring with a voluntary early retirement: you could receive a FERS Special Retirement Supplement that is intended to bridge the gap to social security. It is equal to (Years of FERS service/40)*Estimated benefit at 62.  It ends once you are eligible for Social Security (likely age 62).

 

FERS after transition

• Immediate Retirement
  • If you are any of the following you qualify for immediate retirement:
    • Age 62 with 5 years of service.
    • Age 60 with 20 years of service.
    • Minimum retirement age (55-57) with 30 years of service.
    • Minimum retirement age (55-57) with 10 years of service.
      • Those that are minimum retirement age with 30 years of service do not incur a pension reduction.

 

• <5 Years of Service
  • Keep contribution and interest in pension fund (do nothing)
    • This would likely only be done if you planned to return to federal service in the future.
    • Must have more than 5 years of service to receive FERS pension.
    • Often for those that started after 2013 and do not plan to return to federal service, this is not the most efficient choice.
      • Pro: If you return you will not lose your service credit
      • Con: Your contributions to the plan would only gain minimal interest

 

• • Transfer contributions to Roth IRA and/or interest to Traditional IRA
    • This would likely be done if you do not plan to return to federal service.
    • Contributions can also be transferred into a Roth employer plan and interest can also be transferred into a pretax employer plan.
    • This on the other hand tends to be the most efficient choice for those that joined after 2013 and do not plan to return to federal service.
      • Pro: Your contributions to the FERS pension get to now grow tax free and the Interest is able to grow tax deferred.
      • Con: If you were to return to federal service, your service credit would start over.

 

• • Transfer (withdraw) contributions and/or interest to yourself
    • This would likely only be done in the event that you needed liquidity (cash) during the transition. Ideally, only the contributions would be withdrawn to yourself as they would not have tax consequences or penalties while the interest would be taxed as income and have a 10% penalty (given that you are under 59.5 years old).
      • Pro: Provides access to cash during transition.
      • Con: The funds are likely to be spent, reducing retirement savings.

 

 

• 5-20 Years of Service
  • Keep contributions and interest in pension and take deferred pension
    • With more than 5 but less than 10 years, pensions can be started at age 62.
    • With more than 10 years, pensions can be taken between 55-57 with reduction for taking early (depending on birth year).
    • This makes even more sense for those that joined federal service prior to 2013 and only needed to contribute 0.8% of their pay as their refund of contributions would be relatively small and they are likely closer to retirement age.
      • Pro: You get to maintain your pension.
      • Pro: If you return to federal service your service time will resume where you left off.
      • Con: Depending on how far you are from retirement age, it may be a while before you see any benefits.
      • Con: Especially the father you are from retirement age, the more impact inflation will have on your pension as the formula is based on your prior earnings.

 

• • Transfer contributions into Roth IRA and/or interest into Traditional IRA/new employer plan.
    • This would likely be done if you do not plan to return to federal service.
    • Contributions can also be transferred into a Roth employer plan and interest can also be transferred into a pretax employer plan.
    • This is not typically a good option for those that joined prior to 2013.
      • Pro: Your contributions to the FERS pension get to now grow tax free and the Interest is able to grow tax deferred.
      • Con: If you were to return to federal service, your service credit would start over.

 

• • Transfer (withdraw) contributions and/or interest to yourself (penalties and taxes on interest)
    • This would likely only be done in the event that you needed liquidity (cash) during the transition. Ideally, only the contributions would be withdrawn to yourself as they would not have tax consequences or penalties while the interest would be taxed as income and have a 10% penalty (given that you are under 59.5 years old).
      • Pro: Provides access to cash during transition.
      • Con: The funds are likely to be spent, reducing retirement savings.

 

• >20 Years of Service
  • Keep contributions and interest in pension and take deferred pension
    • If you have greater than 20 years of service you can take a deferred pension starting at age 60.
    • It is important to note that you do not get access to the supplemental SS benefit.
    • Please also note that you are not eligible for FEHB with a deferred benefit.
    • Pro: You get a sizable stream of income that (for the moment) has a cost-of-living adjustment.
    • Con: Many of the benefits available with immediate retirement are not afforded to deferred retirements despite must wait and have inflation reduce value of pension.

 

• • Early retirement (VERA)
    • During reorganizations, downsizing, or reduction-in-force measures and with OPM approval, an agency can offer early retirement to employees.
    • Employees must have 20 years of service and be 50 years old or have 25 years of service and be any age to be eligible.
    • This is almost always a superior option to the deferred pension as it offers an immediate FERS pension with no age reduction.
    • You can receive an early retirement pension and still work in the private sector.
      • Pro: allows for an unreduced FERS pension at a considerably young age.
      • Con: not often offered and may not be ideal for those that wish to remain in the government workforce.

 

• • Transfer contributions into Roth IRA and/or interest into Traditional IRA/new employer plan.
    • This very rarely makes sense in this case. The only reason for doing this would likely be someone completing 20 years of service and still having 10+ years of deferral while also already having a large, guaranteed income stream such as a military pension and need for liquid savings.

 

• • Transfer contributions into Roth IRA and/or interest into Traditional IRA/new employer plan.
    • This would only be done as a last resort in an emergency.

 

Access to capital during transition

• Emergency fund – This is the ideal place to draw from during a transition. Ideally 3-12 months of expenses would have been saved up prior to transition.

 

• Roth IRA basis – Basis is the amount that you have contributed to the Roth IRA minus any unpenalized withdrawals. This amount can be withdrawn tax and penalty free since the money contributed was after-tax dollars.  This makes it a good place to withdraw from but not ideal as it reduces retirement and education savings (Roth IRAs can be used for education spending).  Since there are strict contribution limits on retirement accounts this should only be done if necessary.

 

• TSP Withdrawal – This would be even less Ideal than the Roth IRA basis withdrawal as it could incur taxes or penalties. If the TSP contributions were made pretax then income taxes will need to be paid on the withdrawal amount.  This means both state and federal income taxes.  If you are under age 59.5 there is also a 10% penalty.  There is a special carve out where if you are separated after age 55 and are not employed elsewhere, you are exempt from the 10% penalty.

 

• TSP Loan – TSP loans can only be taken prior to separation from federal employment but repayment may be continued afterwards. If you have a TSP loan at the time of separation it is important to be proactive and arrange payments with TSP.

 

• Home equity loan – Typically you can borrow up to around 80% of the equity in your home. These loans come at a lower interest than a non-asset backed loan but also with the very large risk of your home being foreclosed upon if you cannot repay the loan.  For this reason, we very rarely recommend home equity loans.  They are best suited for those that already have guaranteed income or the savings to pay off the loan and simply want a lower interest rate.

 

• Credit cards – credit cards a last resort (probably prior to home equity loans). If you need to put money on credit cards, it is best to try to find one with as low an APR as possible.  Typically, cards with less rewards come with slightly lower interest rates.  There are also cards that have 0% intro rates that expire after 6-18 months.  These however, are quite risky as they tend to have some of the higher rates once the intro rate expires.

 

Useful Forms:

Thrift Savings Plan (TSP) Forms

• TSP-1, Election Form – Used by federal employees to start, stop, or change TSP contributions txs.uscourts.gov (applies to both FERS and CSRS). PDF: TSP-1 (TSP.gov) – Official: TSP “Forms and Resources” page (tsp.gov).
• TSP-3, Designation of Beneficiary – Used to name one or more beneficiaries to receive your TSP account after your death cafc.uscourts.gov (FERS/CSRS). This form stays in effect until superseded or canceled. PDF: TSP-3 (TSP.gov) – Official: TSP “Forms and Resources” page.
• TSP-17, “Information Relating to Deceased Participant” – Used by a survivor or executor to report a participant’s death to the TSP and initiate payment of death benefits afsa.org (FERS/CSRS). PDF: TSP-17 (TSP.gov) – Official: TSP “Death Benefits” page.
• TSP-60, Request for Transfer Into the TSP (Traditional) – Used by a participant (with an open TSP account) to transfer or roll over money from an eligible employer plan or IRA into the TSP kyeb.uscourts.gov. PDF: TSP-60 (TSP.gov) – Official: TSP “Rollovers and Transfers” page.
• TSP-60R, Request for Transfer into the Roth TSP – Same as TSP-60, but for transfers into the Roth (after-tax) TSP account. PDF: TSP-60R (TSP.gov) – Official: TSP “Rollovers and Transfers” page.
• TSP-65, Request to Combine Accounts – Used to combine a uniformed-services TSP account with a civilian TSP account (or vice versa) notarycam.com. PDF: TSP-65 (TSP.gov) – Official: TSP “Forms and Resources” page.
• Loan/Distribution Forms: (Note: Most TSP loan and withdrawal forms are now handled online via My Account.) The only surviving paper TSP loan form is TSP-26, Loan Coupon Book Request, used by existing borrowers to request loan payment coupons. PDF: TSP-26 (TSP.gov) – Official: TSP “Loans” page. (Most other TSP withdrawal/loan forms are obsolete; use MyAccount.)

FERS (and CSRS) Retirement and Transition Forms

• SF-3107, Application for Immediate Retirement (FERS) – Used by FERS employees to apply for an immediate annuity (no more than 30 days after separation) opm.gov. (FERS only.) PDF: SF-3107 (OPM) – Official: OPM “Planning & Applying” page.
• SF-2801A, Application for Immediate Retirement (CSRS) – Used by CSRS employees to apply for an immediate annuity. (CSRS only.) PDF: SF-2801A (OPM) – Official: OPM “Planning & Applying” page.
• SF-3106, Application for Refund of Retirement Deductions (FERS) – Used by former FERS employees (or their survivors) to get a refund of their retirement contributions. (Covers rollovers, direct payments, and includes the SF-3106A spouse notification) opm.gov. PDF: SF-3106 (OPM) – Official: OPM Retirement Forms page.
• SF-2802, Application for Refund of Retirement Deductions (CSRS) – Used by former CSRS employees (or survivors) for a refund of CSRS retirement contributions opm.gov. PDF: SF-2802 (OPM) – Official: OPM Retirement Forms page.
• SF-3102, Designation of Beneficiary (FERS/CSRS) – Used to name beneficiaries for a lump-sum death benefit under the retirement system opm.gov. (Covers both CSRS and FERS lump-sum benefits.) PDF: SF-3102 (OPM) – Official: OPM “Beneficiaries” page.
• SF-3112, Documentation in Support of Disability Retirement (FERS) – Submitted with SF-3107 when applying for FERS disability retirement opm.gov (collects medical records, agency statements, etc.). (FERS disability applicants also use SF-3107.) PDF: SF-3112 (OPM) – Official: OPM “Disability Retirement” page.
• SF-3109, Election of Coverage (FERS) – Used by an employee (within one year of appointment or reappointment) to elect FERS coverage if eligible opm.gov. (Switches retirement coverage from CSRS to FERS or vice versa.) PDF: SF-3109 (OPM) – Official: OPM “Coverage Election” page.
• SF-3108, Application to Make Service Credit Payment (FERS) – Used by FERS employees to pay deposits for military or other service to count toward retirement opm.gov. (Also used to buy back refunded FERS service.) PDF: SF-3108 (OPM) – Official: OPM “Service Credit” page.
• SF-2803, Application to Make Deposit or Redeposit (CSRS) – Used by CSRS employees to deposit for non-deduction civilian or military service or redeposit refunded CSRS contributions opm.gov. PDF: SF-2803 (OPM) – Official: OPM “Service Credit” page.
• SF-2804, Application to Make Voluntary Contributions (CSRS) – Used by CSRS employees to make voluntary (extra) contributions (up to 10% of pay) toward additional CSRS annuity opm.gov. PDF: SF-2804 (OPM) – Official: OPM Retirement Forms page.
• SF-2807, Register of Separations and Transfers (CSRS) – Agency form used to report the separation or transfer of a CSRS-covered employee for retirement processing opm.gov. PDF: SF-2807 (OPM) – Official: OPM “Personnel Records” page.
• SF-3103, Register of Separations and Transfers (FERS) – Agency form to report the separation or transfer of a FERS-covered employee to OPM for retirement processing opm.gov. PDF: SF-3103 (OPM) – Official: OPM “Personnel Records” page.

Federal Employees Health Benefits (FEHB) Forms

• SF-2809, Health Benefits Election Form – Used by employees (and certain annuitants/former spouses) to enroll in, change, or cancel FEHB coverage opm.gov. Covers open season enrollments, new-hire elections, and enrollment at retirement; employees also use it to waive enrollment. PDF: SF-2809 (OPM) – Official: OPM FEHB Forms page.
• SF-2810, Notice of Change in Health Benefits Enrollment – Used to report mid-year changes or corrections in FEHB enrollment (e.g. changing plans or family members) opm.gov. PDF: SF-2810 (OPM) – Official: OPM FEHB Forms page.
• (Retiree Continuation: Retiring employees usually continue FEHB enrollment automatically by checking block 12 on SF-2809 at retirement; no separate form is required beyond SF-2809.)*

Other Transition Forms

• SF-3102 (see above) – Designation of lump-sum beneficiary (also under this section).
• SF-1152, Claim for Unpaid Compensation of Deceased Employee – (Not usually needed by employees, but survivors use SF-1152 to claim final pay; official OPM form.) PDF: SF-1152 (OPM).
• SF-1153, Claim for Unpaid Compensation – Related to SF-1152 (for use by representatives). PDF: SF-1153 (OPM).
• SF-2821, Agency Certification of Insurance Status – Used by agencies to certify an employee’s status for health/life insurance (generally for payroll records). PDF: SF-2821 (OPM).
• SF-2818, Life Insurance Continuation – (For FEGLI, not FEHB, but often done at retirement with SF-2817/2818.) PDF: SF-2818 (OPM).