Is a military buy back under FERS worth the deposit?

Before your first FERS paycheck, know what the deposit buys

The deposit is 3% of the basic pay you earned during the post-1956 active-duty service you want credited. Only basic pay counts. BAH, BAS and special pays are not part of the base, so a 6-year enlistment that paid $210,000 in basic pay produces a $6,300 deposit, whatever your housing allowance was.

In return, each credited year adds 1% of your High-3 to the FERS basic annuity. High-3 is your highest average basic pay over any 3 consecutive years of federal service. The factor rises to 1.1% if you retire at age 62 or later with at least 20 years of service, and paid military years count toward those 20. Four credited years at 1% on an $85,000 High-3 add $3,400 each year, for life.

Then comes the catch. If you draw military retired pay, you generally must waive it for the same service to count in FERS. The rule has two exceptions. You keep retired pay paid because of a combat-related disability, and you keep Reserve retired pay paid under chapter 1223. A veteran who left after 4 or 6 years has no retired pay, so none of this applies. Everyone else should read the retired pay part of this article before paying anything.

One limit on scope. This page covers FERS, not CSRS, and it does not cover Guard or Reserve inactive-duty time, which is not creditable as active service. OPM and your agency payroll office compute the official numbers.

What the 3% is applied to

What each credited year adds

Your first 2 years under FERS are interest-free

No interest is charged if you pay the deposit within 2 years of first becoming employed under FERS. After that, interest compounds each year at a rate OPM sets annually, and I won't quote a rate here because it changes. Check the current figure with your payroll office.

The clock starts on your FERS start date, not on the day you ask about the deposit. Miss it by a month and the interest begins, small at first, then larger each year. In Ruth's case, later in this article, $720 grew to about $968.

You don't need the full amount in cash on day one. Ask payroll to start installments before the window closes. On a $6,300 deposit, paying through 52 pay periods works out to about $121 each period, which most paychecks absorb without a second thought.

Paying early has a cost too: it ties up cash you might need if a car dies or a job ends. Keep your emergency fund whole first, then schedule the deposit. The cheapest moment to buy a pension is also the moment you're most likely to be short on spare money, and installments solve that.

Why the window matters more than the rate

Documents to pull in your first 90 days

Four documents and two statements do most of the work, and you can pull them in your first 90 days. Start with the DD-214. It shows the exact dates of your active duty, and those dates decide which years are creditable and which, like Guard or Reserve inactive-duty time, are not. Next comes Form RI 20-97, the military service deposit worksheet. You don't fill in the money columns yourself. Your HR office sends the form to the military finance center, and the center returns your basic pay by year. That estimate is the number the 3% gets applied to, so it sets the size of the deposit. Ask for it early, because the answer can take months to come back. Then find your SF-50, the personnel action form that shows your FERS start date. That date starts the 2-year interest-free clock, so save a copy from your agency's HR portal. The agency payroll office issues the deposit bill and tracks the balance, and the balance shows on your earnings statement. Check it on a set calendar date, the way you check your TSP balance, instead of when you happen to remember. If you draw military retired pay, add the DFAS retiree account statement. It shows the gross retired pay a waiver would give up, and gross is the figure that matters here, not the smaller amount that lands in your bank account after withholding and any SBP premium. Everyone should also pull the Social Security statement from the my Social Security account, which lists your earnings record and benefit estimates, plus last year's tax return. The return shows the income lines that feed IRMAA, the income-based surcharge on Medicare Part B, which matters if you plan to fund the deposit from a traditional IRA. Put all of it in one folder, paper or digital, and write one line on top: deposit due before my last federal workday, with the date. Many households keep the DD-214 in a safe-deposit box, the SF-50 in a drawer at the old house and have no idea what the military finance center holds. None of that is a problem if you find it 12 months before retirement. It becomes a problem at month 2, when HR says the estimate will take 90 days and the retirement date is already set.

Order matters here. Have the DD-214, the RI 20-97 estimate and the SF-50 in the folder before you decide whether to pay, waive or skip.

How much will the military deposit cost? A napkin calculation

For a veteran with 6 years of enlisted service and $210,000 of basic pay, the deposit is $6,300. At an $85,000 High-3 it adds $5,100 each year to the FERS annuity, so the cost comes back in about 15 months of annuity payments. The same five steps work for any set of years.

Step 1: add up your basic pay for the creditable years, using the RI 20-97 estimate. For a hypothetical reader with 6 years, that total is $210,000. Step 2: multiply by 3%, which gives $6,300. If you are past the 2-year window, add interest at OPM's current rate, and expect the agency's number to differ a little from yours.

Then price the benefit. Multiply credited years by 1% and by your expected High-3. Six years × 1% × $85,000 = $5,100 each year. Now divide the deposit by the added annuity: $6,300 ÷ $5,100 is about 1.2 years, roughly 15 months. For a veteran with no retired pay, that is a fast payback on a benefit that lasts for life. The calculator on this site runs the same arithmetic if you want to try your own numbers.

Step 5 applies only to retirees. Subtract the retired pay you would waive from the added annuity. If the result is negative, stop. That single subtraction is the whole reason the next part of this article exists.

Two cautions on the arithmetic. High-3 is a forecast, and a lower High-3 shrinks the benefit. The payback also starts only when the annuity does. If you pay at 45 and retire at 62, your $6,300 sits for 17 years before the first $5,100 arrives. The 15 months is counted from your first annuity check, not from the day you pay.

Steps 1 and 2: the deposit

Steps 3 to 5: payback and the retiree check

Retired pay changes the whole answer

Reena, a hypothetical person, retires from the Air Force after 22 years with about $68,000 a year of retired pay, and she plans a federal civilian job from age 50 to 62. Her basic pay over 22 years totaled about $1.4 million, so a deposit would be 3% × $1.4 million = $42,000.

With 12 civilian years alone, FERS pays 12 × 1% × a $130,000 High-3 = $15,600 each year. Crediting her military years gives 34 years at 1.1%, which is 37.4% × $130,000 = $48,620. The gain is $33,020. To get it, she must waive $68,000 of retired pay.

That is a net loss of $34,980 each year ($68,000 − $33,020), after spending $42,000 to get there. Even the jump to the 1.1% factor can't close a gap this wide. A 22-year retiree with non-disability retired pay almost always lands here.

Waiving retired pay can also affect the Survivor Benefit Plan coverage tied to it. Ask DFAS what happens to your spouse's coverage, and get the answer on paper before any waiver form carries your signature. Read the SBP election page on the DFAS site first.

For short-service veterans with no retired pay, none of this applies. The deposit is usually the cheapest pension a person will ever buy, and the only risk is waiting too long.

Reena's numbers

Survivor coverage and the short-service exception

Four beliefs about the buy back that break down

Most of the bad decisions we see start with a sentence a coworker said at lunch. We hear the same four repeated in nearly every agency, and each fails in a specific way.

None of these beliefs is foolish. Each one is true for somebody. The trouble starts when it gets applied to a different person's service record.

Where each belief goes wrong

• 'The deposit is huge.' For 3 or 4 years of junior enlisted pay decades ago, it is often under $1,000. Big deposits belong to long careers, and long careers usually mean retired pay.
• 'My DD-214 already proves the time.' It proves the service, not the credit. Under FERS, unpaid post-1956 service adds nothing to the annuity.
• 'I can settle the bill after I retire.' The balance must be zero before separation from federal service, or those years are out of the annuity.
• 'Retirees should always buy back.' The waiver usually makes it a losing trade for anyone with 20 or more years and non-disability retired pay.

What a skipped deposit nearly cost one widow, and the fix

Ruth, a hypothetical person, is 67, the widow of an Army sergeant major, receives an SBP annuity and lives in a paid-off house near her grandchildren. She has about $600,000 in an IRA and an inherited TSP account. She also served 3 years of active Army duty in her early 20s, and she took a federal job under FERS at 55. She plans to retire at 68.

Her basic pay for those 3 years totaled about $24,000, so the deposit was 3% × $24,000 = $720. Leaving that $720 in the TSP looked smarter, so she skipped it. That choice felt like prudence, since the money kept earning.

After the 2-year window, interest ran for 10 years. Assuming 3% a year compounded, for illustration, $720 × 1.344 = about $968. The extra $248 is annoying, but it isn't the real danger.

Missing her separation date would have cost far more. Three years × 1% × a $70,000 High-3 = $2,100 each year, about $42,000 over 20 years. A $968 bill stood between her and a pension worth more than 40 times that amount.

Her fix was simple. She requested the pay estimate 12 months out and paid the $968 from bank savings, not her IRA. The next table puts the three choices on the same criteria, using a 22% tax rate on IRA withdrawals.

All 3 options cost under $1,300, while the option that costs nothing up front is the only one that loses $2,100 every year. Paying from the IRA costs about $273 more in cash because the withdrawal is taxed, and it adds income that can touch other thresholds.

Her SBP annuity comes from her late husband's service, so no retired-pay waiver comes up for her own 3 Army years. She should still confirm this with her HR office in writing.

Here is how First Command Financial Services handles the practical side. It puts the deposit due date in the household's written plan and earmarks the cash in a bank account months ahead, so the payment never forces a sale of C Fund shares in a down month. TSP funds can fall in value, and a bill with a fixed due date shouldn't hang on what the market does that week.

The behavior point is the heart of it. People rarely lose this pension because they chose badly. They lose it because the deadline had no date in front of it and the money had no home.

The move that looked smart

The three ways to pay

The fix in practice

Two small delays add up to one large loss

Letting the 2-year interest-free window pass and then requesting the military pay estimate in the last months before retirement tend to arrive together. Each looks minor. Together they cost the hypothetical Ruth $248 in interest and put $2,100 a year of FERS annuity, about $42,000 over 20 years, at risk of being lost for good.

The second delay is the dangerous one. The military finance center can be slow to send back the pay estimate, and the agency can't bill you until it arrives. If you ask in the final months, the bill can arrive after your last workday, and an unpaid balance at separation leaves those years out.

A decision rule fixes both. If you don't draw military retired pay and expect at least 5 years of federal civilian service, pay the full deposit within your first 2 years under FERS. If you do draw retired pay, compare the retired pay you would waive with the added FERS annuity, and skip the deposit whenever the waived pay is larger.

Five years of civilian service is the minimum for any FERS annuity, so a veteran who may leave sooner should wait on the deposit. Skipping it also makes sense when your retired pay beats the added annuity. The same cash usually does more as extra TSP contributions, up to the $24,500 2026 employee limit, and you keep your retired pay.

Delay 1 and delay 2

A rule you can apply today

Taxes on the deposit and on the bigger annuity

You pay the deposit from income that has already been taxed, so it gives no deduction. The amount is added to the annuity's cost basis, which comes back tax-free over the annuity payments. The added annuity itself is ordinary taxable income each year, and some states tax retirement income, so check your own state's treatment.

Where the cash comes from matters more than most people expect. Funding the deposit from a traditional IRA adds taxable income in the year you withdraw, and Medicare looks at that income two years later. For 2026, Part B premiums are set from 2024 MAGI: a single filer above $109,000, or a joint filer above $218,000, pays $284.10 a month instead of the $202.90 standard premium. That is $81.20 more each month, or $974.40 over a year. A withdrawal taken in 2026 can't change your 2026 premium. If it pushes your 2026 MAGI over the line, the surcharge shows up on your 2028 Part B bill.

The extra income can also raise the taxable share of Social Security benefits, which the SSA reports on your annual statement and the IRS counts on your return. Neither effect shows up on the deposit bill.

Ruth files single, with a 2026 standard deduction of $16,100. Paying $968 from savings keeps her IRA withdrawals, and her income, unchanged. Paying it from the IRA would add about $1,241 of gross income to cover a $968 bill.

A married couple filing jointly has a $32,200 standard deduction and a higher IRMAA line at $218,000. The room is bigger, but it still shrinks once pensions, annuities and withdrawals stack up.

The deposit itself

The IRA withdrawal trap

How long do you have to change course?

You can pay the military deposit at any time up to your last federal workday, with interest after year 2. After that day, an unpaid balance is not reversible, and those military years drop out of your annuity. The timeline below shows which moves can still be undone.

Not paying yet is reversible. You can also start or speed up payroll installments whenever you like. What is not reversible is separating with a balance due. For retirees, treat a waiver as one-way, and get the reversal rules from DFAS in writing before you rely on any.

Use a quick test with a calendar: request the RI 20-97 estimate at least 12 months before your planned retirement date, and aim for a zero balance 3 months before it. That leaves a cushion for a slow estimate, a corrected bill or a sudden early retirement from a health change or a reorganization.

Reversible and not reversible

• 12 months before retirement: request the RI 20-97 estimate and confirm the SF-50 date.
• 9 months before: get the agency's bill and start or raise installments.
• 3 months before: aim for a zero balance on your earnings statement.
• Last federal workday: the hard deadline, with no extension.

Rules that changed since older written plans were drafted

Two rule changes make an older written plan worth rerunning. The first is the Blended Retirement System, which covers members who joined after 2017 and those who opted in. Under it, retired pay is 2.0% of High-3 for each year of service instead of 2.5% under the legacy High-3 system. For 22 years, legacy retired pay is 55% of High-3 and BRS retired pay is 44%, which is 20% smaller. A smaller retired check means a waiver gives up less, so waiver math done under legacy assumptions needs rerunning. Reena's $68,000 would be about $54,400 under BRS, and her net loss would shrink from $34,980 to about $21,380 a year. That is still a loss, but the gap is narrower, and for someone with a shorter career or a larger High-3 the answer could flip. The second change is the start age for required minimum distributions, or RMDs, the yearly withdrawals the IRS makes you take from traditional IRAs. They now begin at age 73, or age 75 for people born in 1960 or later. An older written plan may have counted on IRA withdrawals starting earlier to fund the deposit. If you were born in 1960 or later, those withdrawals may not start until age 75, so a deposit due at 62 or 65 needs another cash source: bank savings, a taxable account, or a planned partial IRA withdrawal with its tax cost priced in. Social Security has a similar date. Full retirement age is 67 for people born in 1960 or later, and a plan that assumed 66 will show benefits that arrive a year later than you think. The check is quick. Pull out the old written plan and find three numbers: the retired pay it assumed, the year it assumed RMDs would start, and the account it named to pay the deposit. If any of the three no longer matches your situation, redo the payback before you pay or waive anything.

Bringing the buy back to First Command Financial Services

Talk to First Command Financial Services when you've got a DD-214 and a FERS job and aren't sure whether the deposit pays, or when a bill with interest has arrived. Bring the DD-214, the RI 20-97 estimate or agency deposit bill, the SF-50, any DFAS retiree statement and your Social Security statement. A First Command Financial Services financial advisor checks the payback and the waiver math by video or phone and adds the due date to your written plan.

Households with $500K or more in investable assets can describe their situation through the request form (no phone number is published). You get the exact cost in a signed written agreement, and no work starts until that agreement is in place.