Leaving Federal Service Before 3 Years? 4 Permanent Costs

Last Updated: June 3, 2026 Reading Time: 9 min

Most federal benefits are talked about around the 5-year mark, when your FERS pension vests. But there's an earlier line that costs people real money, and almost nobody mentions it. Leaving federal service before 3 years trips four separate consequences, and a couple of them are permanent.

If you're thinking about resigning, taking a private-sector offer, or you got caught in a RIF before year 3, here's exactly what's at stake and how to protect yourself on the way out.

Key Takeaways

• The 3-year mark controls two things the 5-year mark does not: your lifetime reinstatement rights and your TSP automatic 1% vesting.
• Leave before 3 years and your reinstatement eligibility expires 3 years after separation. After that you compete as the general public. Veterans keep it for life.
• You forfeit the agency automatic 1% TSP contribution and its earnings. Your own money and the up-to-4% match are always safe.
• Taking the FERS refund voids that service unless you later pay it back with 4.25% (2026) compound interest.
• Sick leave never pays out, but it's restored in full if you return. Annual leave pays out in a lump sum.

The Two Clocks That Matter Before Year 5

Federal service has more than one vesting line, and they control different things. This is the part no one lays out clearly:

Threshold	What it controls	If you leave before it
1 year	Competitive status, basic appeal rights	Limited status and appeal rights
3 years (career tenure)	Lifetime reinstatement eligibility	Reinstatement window closes 3 years after you leave
3 years (TSP vesting)	Agency automatic 1% contribution	You forfeit the 1% and its earnings
5 years (FERS)	Pension eligibility	No pension; contributions are refundable
5 years (FEHB)	Carry health coverage into retirement	Cannot keep FEHB in retirement

The 5-year FERS line gets all the attention. The two 3-year lines are the ones that quietly cost early-career feds. Here's each consequence in order.

1. You Lose Lifetime Reinstatement Rights

When you're hired into the competitive service, you start as career-conditional. Your SF-50 shows Tenure Code 2 in Block 24. After 3 years of creditable service, that automatically converts to Tenure Code 1, career tenure, and you gain lifetime reinstatement eligibility. That lets you apply to merit-promotion and reinstatement-only jobs for the rest of your life without competing against the public.

Leave before 3 years and you keep reinstatement eligibility for only 3 years from your separation date. After that, the door closes and you apply as a member of the general public.

That 3-year window sounds generous until you live it. A private-sector job search, a cross-country move, or a couple of years figuring out the new gig can eat the whole window. Plenty of feds who meant to come back discover their eligibility expired while they weren't looking.

One important exception: veterans with preference have lifetime reinstatement eligibility regardless of tenure. If that's you, this particular clock doesn't apply.

2. You Forfeit Your TSP Automatic 1%

This is the silent one. Most people assume that since the match is "their money," they keep everything in TSP. Not quite.

Your TSP has three buckets:

• Your own contributions and their earnings: always yours, no waiting.
• Agency matching (up to 4% on the first 5% you contribute): immediately vested, always yours.
• Agency automatic 1% (deposited every pay period whether or not you contribute): vests at 3 years for most FERS employees.

Leave before 3 years and that entire automatic 1% bucket, plus everything it earned, is forfeited back to the TSP. It happens automatically when your agency reports your separation.

How much? Here are two illustrative cases using 2026 pay:

• A GS-9 Step 5 (about $61,800) forfeits roughly $1,900 in automatic contributions and earnings. Left to grow at 7% for another 30 years, that's about $14,500 in foregone compounding.
• A GS-13 Step 5 (about $138,000) forfeits roughly $4,200, which is about $32,000 in foregone growth over 30 years.

These are illustrations, not promises. Your real number depends on your salary history and TSP fund returns. One bit of good news: if you return to federal service, your prior time counts toward a new vesting clock through your TSP Service Computation Date. You don't restart at zero.

3. The FERS Refund Trap

When you separate, you can request a refund of your FERS retirement contributions using form SF-3106. For a FERS-FRAE employee (hired 2014 or later, contributing 4.4% of pay), that can be $10,000 to $20,000 depending on salary and time. It feels like found money. It isn't.

Taking the refund voids all annuity rights for that period of service. If you ever come back and want that time to count toward your pension, you have to make a redeposit (form SF-3108) for the original amount plus compound interest. The 2026 interest rate is 4.25% (OPM BAL 26-301), and it has been as low as 1.375% and as high as 4.4% in recent years.

Skip the redeposit before you retire and those years count toward your retirement eligibility but not toward your pension calculation. Retire with 20 years that include an unredeposited 2.8-year stint, and OPM computes your annuity on 17.2 years. That gap is permanent.

The rule of thumb: if there's any real chance you return to federal service, leave the contributions on deposit and avoid the future interest bill. If you're certain you're done with government for good, the refund is cash in hand (the principal isn't taxable, only the interest portion).

4. Sick Leave Doesn't Pay Out, but It Comes Back

Two different rules here, and people mix them up constantly.

Annual leave pays out in a lump sum at separation, up to the 240-hour carryover ceiling plus what you earned in your final year. Time your last day well, because annual leave accrues each pay period, and leaving mid-period can cost you a period's accrual.

Sick leave does not pay out. There is no lump-sum provision for it, ever. But it is recredited in full when you return to federal service, no matter how long you've been gone, as long as it wasn't already used to compute an annuity. So if you have 500 hours of sick leave and take a 5-year break, all 500 hours come back on your first day. It's not lost, just frozen.

For more on how that balance pays off if you stay until retirement, see our guide on how much your unused sick leave is worth.

Before You Leave: A Pre-Departure Checklist

Run this 30 to 60 days before your separation date:

• Check your SF-50 Tenure Code (Block 24). A "2" means you have not hit career tenure. Note your exact 3-year anniversary, and ask whether staying to that date is feasible.
• Document your TSP balances by bucket. Identify the automatic 1% separately. That's the piece you forfeit before year 3.
• Confirm your TSP-SCD with HR. It sets your vesting clock and isn't always the same as your leave or retirement SCD.
• Decide on the FERS refund. Get SF-3106 if you're taking it; file no earlier than 31 days after separation. Leave it on deposit if you might return.
• Maximize your annual leave payout. Check your balance and time your last day so you don't lose a pay period's accrual.
• Write down your sick leave hours. It doesn't pay out, but you'll want the record for when it's recredited.
• Handle FEHB and FEGLI deadlines. FEHB continues free for 31 days, then TCC for up to 18 months at full premium plus 2%. FEGLI conversion is a hard 31-day window.
• Clear any TSP loan. An unpaid loan becomes a taxable distribution 90 days after separation.
• Save your most recent SF-50. It's your proof of status. Agencies lose records.
• Set a calendar reminder for your reinstatement window. If your Tenure Code is "2," it expires exactly 3 years after you leave.

If your separation is a RIF rather than a resignation, you may also be owed severance pay and a spot on the Re-employment Priority List. And if you're weighing the 5-year pension decision instead, see our FERS 5-year vesting refund-vs-defer guide.

Calculate What's at Stake

Use our free TSP Calculator to model the growth of the automatic 1% contributions you'd keep by staying to year 3, and our FERS Retirement Calculator to see how an unredeposited stint changes a future annuity. Run your TSP numbers. For the broader picture of moving your TSP after you go, see the TSP leaving-government separation guide.

Frequently Asked Questions

What happens to my reinstatement eligibility if I leave before 3 years?

You have exactly 3 years from your separation date to be reinstated non-competitively. After that window closes, your career-conditional reinstatement eligibility expires and you compete as a member of the general public. Veterans with preference and employees who already completed 3 years have no time limit.

What exactly do I forfeit from my TSP if I leave before 3 years?

Only the agency automatic 1% contribution and its earnings. Your own contributions, your earnings on them, and all agency matching (up to 4% on the first 5% you put in) are immediately and permanently yours. The 1% forfeiture happens automatically when your agency reports your separation to the TSP.

If I come back to federal service later, does my prior time count toward TSP vesting again?

Yes. When you are rehired as a FERS employee, your TSP Service Computation Date credits your prior civilian federal service, so you pick up the vesting clock where you left off rather than restarting at zero. Prior military service does not count toward the TSP-SCD.

Should I take a FERS contribution refund when I leave?

It depends on your hire tier and whether you might return. Taking the refund voids all annuity rights for that service and creates a future redeposit bill with compound interest (4.25% in 2026) if you come back. If there's any chance you return, leaving the money on deposit avoids that interest. If you're certain you won't, the refund gives you cash (principal isn't taxable, only interest).

Does sick leave pay out when I leave federal service?

No. There is no lump-sum payout for sick leave under any circumstances. But your full sick leave balance is recredited when you return to federal service, no matter how long the break, as long as it wasn't used to compute an annuity. Annual leave does pay out in a lump sum.

Related Resources

• TSP Calculator: Model the automatic-1% growth you keep by staying to year 3.
• FERS Retirement Calculator: See how an unredeposited stint affects a future pension.
• FERS 5-Year Vesting: Refund vs. Defer: The decision at the next threshold.
• How Much Is Your Unused Sick Leave Worth?: What that balance does at retirement.

Sources

• 5 CFR 315.401: Reinstatement eligibility
• TSP Bulletin 15-1: Vesting and TSP-SCD
• OPM FERS Former Employees / Refunds
• OPM BAL 26-301: 2026 interest rate (4.25%)
• 5 CFR 630.502: Sick leave recredit