FERS Retirement Planning for IRS Employees

Your FERS annuity is fully taxable as ordinary income, minus a small pro-rated exclusion for your after-tax contributions to FERS (typically less than 2% of each payment). Your traditional TSP withdrawals are also fully taxable as ordinary income. Roth TSP withdrawals are tax-free if you have held the account for 5 years and are over 59.5. The combination of annuity plus TSP RMDs is where IRS retirees often find themselves pushed into higher brackets than expected.

FERS-FRAE (Further Revised Annuity Employees) applies to employees hired after December 31, 2013. You contribute 4.4% of your basic pay toward FERS rather than the 0.8% rate under older FERS. Your benefit formula is identical: 1% per year of creditable service times your high-3 (1.1% if you retire at 62 or later with 20+ years). The only difference is the cost to you. Your retirement benefit is the same as a colleague hired in 2010.

Yes, if you have 20 or more years of LEO-covered service. The mandatory separation rule for FERS law enforcement officers is age 57 with 20 qualifying years, unless your agency grants a limited extension. IRS CI has used such extensions in specific circumstances, but they are not guaranteed. If you have fewer than 20 years of LEO service at 57, the mandatory separation does not apply, but your annuity reverts to the standard FERS formula for any non-LEO service.

Seasonal and intermittent appointments generally do not count as FERS creditable service unless you were in a covered position contributing to the retirement fund. Check your official SCD (service computation date) on your current leave and earnings statement. If your SCD is later than your first day of IRS employment, the gap likely reflects non-creditable time. An HR records audit can confirm exactly which periods are included.

It depends on where you expect your tax rate to be in retirement. If you have a large traditional TSP balance and will also receive a taxable FERS annuity and Social Security, your retirement income may be taxed at 22% or higher. In that case, contributing to Roth TSP now and paying taxes at your current rate can be advantageous if your current rate is below your expected retirement rate. Many senior IRS employees in the $130,000 to $180,000 salary range benefit from a split contribution strategy.

Yes. Non-LEO IRS employees can retire at their Minimum Retirement Age (57 for those born in 1970 or later) with 30 or more years of service, at age 60 with 20 years, or at age 62 with as few as 5 years. An unreduced annuity at MRA requires 30 years of creditable service. With 10 to 29 years at MRA, the annuity is reduced by 5% for each year under age 62 unless you defer the annuity to age 62.