“Can I take out a loan towards my FERS contributions? I’m a federal employee and no where close to retirement. Would it work like the TSP loan that I can just pay it back over a few years? I can’t find any information on this topic.” – Martin
If you work for the federal government, you pay into the Federal Employees Retirement System (FERS) every time you get paid. This article explains what FERS is and what you can do with your contributions.
What is FERS?
FERS is the retirement plan for federal employees hired after 1983. It has three main parts:
- A basic pension
- The Thrift Savings Plan (TSP)
- Social Security benefits
Can You Take a Loan from FERS?
No, you cannot take a loan from your FERS contributions. The key is your FERS Contributions. This is different from the TSP, where you can borrow money in some cases.
Why Can’t You Borrow from FERS?
FERS is a pension fund that gives you money when you retire. It’s not set up for loans. The TSP is more like a savings account you can manage.
What If You Need Money Now?
If you leave your federal job before retiring, you have two main options:
- Withdraw: If you worked less than 5 years, you can take out your FERS money. But this might not be a good idea.
- Leave It: If you worked 5 years or more, you can leave your money in FERS. It will keep growing until you retire.
TSP vs. FERS: What’s Different?
- FERS: FERS is classified as a Defined Benefit plan. A Defined Benefit plan is an employer-sponsored retirement plan where the benefit is pere-determined. The employer guarantees a specific monthly payment for life, regardless of investment performance. You will receive a monthly pension based on how long you worked and your highest salary.
- TSP: Your TSP is classified as a Defined Contribution plan. A Defined Contribution plan is a retirement savings plan where both the employer and employee contribute to an individual account. A savings account where you and the government put in money. You can invest it, borrow from it, or take it out when you’re allowed. Your retirement benefit will be based on the account value and the value will fluctuate based upon contributions and investment performance.
Should You Take Your Money Out?
It’s usually better to leave your money in FERS, especially if you might work for the government again. Because of wonderful benefits available to Federal Employees, leaving you money in FERS really leaves a “foot in the door” in case you return to work for the government again. Your money will keep growing if you leave it in.
Key Points to Remember:
- You can’t take loans from FERS, Defined Benefit plans in general are not set up for loans, so loans are not allowed.
- If you leave your job, you can take out your money or leave it in.
- FERS gives you a set pension, while TSP is like a savings account
- Leaving your money in FERS is often the best choice for the long term, especially if there is a possibility of returning to work for the federal government.
For more information, visit the OPM website.
References:
U.S. Office of Personnel Management. Federal Employees Retirement System (FERS).