If you separate from federal employment and are not eligible for a retirement annuity at that time, you may apply for a refund of your retirement contributions or you may elect to leave the contributions in the retirement fund until you are eligible for a deferred retirement.
In order to be eligible for a refund, you must be separated from the federal government for at least 31 consecutive days or be transferred to a position not subject to retirement deductions for at least 31 consecutive days; not be reemployed in a position subject to retirement deductions at the time you file your application; be ineligible to receive an immediate annuity within 31 days of separation; Not be prohibited from receiving a refund due to a court order; and notify your current and/or former spouse(s) of the refund request, if applicable.
If you are thinking about withdrawing your retirement contributions, there are several things that you should consider.
A refund might make sense if:
you have less than five years of civilian service and you do not intend to return to federal employment, a refund may be advantageous because you must have at least five years of creditable service in order to receive an annuity; or
you have five or more years of civilian service and you do not intend to return to federal employment, and you believe you can invest the funds so that the final value of such investments exceeds the value of the deferred annuity. This will take some speculation on your part. Remember, if you don’t take a refund you can apply for a deferred annuity at age 62, and at that time you can provide a survivor annuity for your spouse.
A refund might not make sense if:
you might re-employed by the federal government and wish to receive credit for the refunded service. If you were under CSRS, you will be required to make a redeposit in order to receive credit for those earlier years of service. The cost of the redeposit is equaled to the refund received plus interest. If you were under FERS, you cannot make a redeposit and credit for that time is lost.
you have at least five years of civilian service and your potential deferred annuity exceeds the value of the lump-sum refund.
Remember, a refund of all deductions voids any retirement options, including survivor benefits, unless the refund is re-deposited. Ineligibility for a survivor benefit also generally means ineligibility for continued Federal Employees Health Benefits coverage for your survivor after your death.