Marcus is 51, a GS-13 at a Defense agency, and he just ran his retirement estimate for the first time. The number looked fine until he remembered the four years he spent in the Army right after high school. Nobody had ever told him whether those years were in the estimate. They weren't.

That's the usual story. Military service doesn't automatically boost your FERS pension. You generally have to pay for it, and the price is often the best bargain in federal retirement.

What the deposit actually is

Under FERS, active duty military service after 1956 can count toward your annuity if you make a deposit to your retirement account. The deposit is 3 percent of your basic military pay during that service, plus interest if you wait too long.

Basic pay is the key phrase. Housing allowances, subsistence, special pays, and bonuses are not part of the calculation. That keeps the number smaller than most people expect.

Service before 1957 is credited without a deposit. Very few current employees have that, but it's worth knowing.

A realistic example

Say Marcus served four years in the late 1990s and early 2000s, and his basic pay averaged about $1,800 a month.

  • Total basic pay: $1,800 x 48 months = $86,400
  • Deposit at 3 percent: about $2,592

Now look at what it buys. FERS pays 1 percent of your high-3 average salary for each year of service, or 1.1 percent if you retire at 62 or later with at least 20 years. If Marcus's high-3 is $110,000, four extra years add:

  • At 1 percent: $4,400 a year
  • At 1.1 percent: $4,840 a year

For roughly $2,600, he adds more than $4,000 in annual pension for life, with cost-of-living adjustments on top. The payback period is well under a year of retirement. Not many financial moves in your career will match that.

The credit can also affect when you can retire, not just how much you receive. Four more years of creditable service can move you toward the MRA+30 threshold years earlier than you'd otherwise reach it.

The interest clock

Timing matters. If you pay the deposit within three years of beginning covered civilian service under FERS, no interest is charged. After that, interest accrues, compounding annually, at rates OPM sets each year.

That's why a $2,592 deposit can grow over a long career. If Marcus had paid it in his first three years, he'd owe $2,592. After 20 years of interest, the bill could be considerably higher. Even so, it often remains worth paying, but the cost gets steadily worse, and there's no reason to give OPM free interest income.

Check OPM's current interest rates on opm.gov rather than relying on any number you read in an article. They change.

Who shouldn't just assume the deposit is a good idea

Military retirees

If you're drawing military retired pay, you generally can't count that same service for your FERS annuity unless you waive the military pension. There are exceptions, including retirement based on a combat-related disability and certain Reserve retired pay that begins at age 60. For someone with a 20-year military pension, waiving it to boost a civilian annuity rarely makes sense, but run the numbers before you rule it out.

Reserve and Guard members

Active duty counts. Active duty for training counts. Weekend drills, known as inactive duty training, generally don't. If your record includes a mix, you'll want your actual service history in front of you before you plan anything.

Employees close to retirement

Pay the deposit before you retire. Waiting until your last week isn't a trap, but it isn't a plan either. If the deposit is unpaid when you retire, your annuity is computed without that service. Whether unpaid time still counts toward eligibility depends on the specifics of your case, so get that answer in writing from your HR office or OPM.

How to actually do it

Start by documenting the service.

  1. Get your records. Your DD-214 is the main document. If you can't find it, request it through the National Archives. Reserve and Guard service may need additional records.
  2. Request your military earnings. Your branch can provide a statement of basic pay during active duty. OPM's form RI 20-97, Estimated Earnings During Military Service, exists for this purpose. Ask your HR office which version they want.
  3. Ask HR or your benefits center for a deposit computation. They'll calculate what you owe, including any interest, and give you the application.
  4. Choose how to pay. Most agencies accept a lump sum, and some allow installments. Ask what's available.
  5. Keep the receipt. Seriously. Put it with your retirement papers. Records get lost over 30 years.

Don't rely on a verbal "it's in the system." Look for your military service listed on your Service Computation Date records and in your retirement estimate.

Where the money comes from, and the TSP question

If you're paying a few thousand dollars, a lump sum from savings is the simplest path. If it's larger, because you waited a long time or had a longer or later enlistment, you may be tempted to tap retirement accounts.

Be careful. Taking money from a traditional IRA or the TSP means ordinary income tax on the withdrawal, and an early-withdrawal penalty may apply if you're under 59½. Check the TSP's rules on withdrawals and loans at tsp.gov, and IRA rules at irs.gov. The deposit itself is paid with after-tax dollars and isn't deductible, so the all-in cost of a withdrawal-funded deposit can be notably higher than the sticker price.

Even so, the pension math is strong. Paying a tax-inflated $4,000 for roughly $4,000 a year in lifetime income is still an excellent trade for most people. Just make the decision with eyes open, ideally with a fee-only planner or your agency's benefits specialist if the dollars are large.

The short checklist

  • Find your DD-214 and military pay records.
  • Confirm whether your service is active duty after 1956.
  • Check whether you're drawing military retired pay that would need to be waived.
  • Get a deposit figure in writing from HR.
  • Pay inside the interest-free window if you still can. If not, pay as soon as you can afford to.
  • Keep proof of payment permanently.

Marcus, as it happens, got his deposit figure the next week. With interest from a long wait, it came to a few thousand dollars more than it would have at 25. He paid it anyway. The extra $4,400 or so each year in retirement will outlast the sting.

Rules, rates, and forms change, so confirm the current details with your HR office, OPM, and tsp.gov or irs.gov for anything touching your TSP or IRA.