Part I General Information

This part of the publication contains information that can apply to most recipients of civil service retirement benefits.

If you leave federal government service or transfer to a job not under the CSRS or FERS and you aren’t eligible for an immediate annuity, you can choose to receive a refund of the money in your CSRS or FERS retirement account. The refund will include both regular and voluntary contributions you made to the fund, plus any interest payable.

If the refund includes only your contributions, none of the refund is taxable. If it includes any interest, the interest is taxable unless you roll it over directly into another qualified plan or a traditional individual retirement arrangement (IRA) or traditional SIMPLE IRA. If you don’t have the Office of Personnel Management (OPM) transfer the interest to an IRA or other plan in a direct rollover, tax will be withheld at a 20% rate. See Rollover Rules under Part II, later, for information on how to make a rollover.

Interest isn’t paid on contributions to the CSRS for

TIP service after 1956 unless your service was for

more than 1 year but not more than 5 years. Therefore, many employees who withdraw their contribu- tions under the CSRS don’t get interest and don’t owe any tax on their refund.

If you don’t roll over interest included in your refund, it may qualify as a lump-sum distribution eligible for capital gain treatment or the 10-year tax option if the plan participant was born before January 2, 1936. If you separate from service before the calendar year in which you reach age 55 (or before the earlier of age 50 or completing 25 years of service under the plan if you are a qualified public safety employee), it may be subject to the 10% additional tax on early distributions. For more information, see Lump-Sum Distributions and Tax on Early Distributions in Pub. 575.

The CSRS or FERS annuity you receive is subject to federal income tax withholding, unless you choose not to have tax withheld. OPM will tell you how to make the choice. The choice for no withholding remains in effect until you change it. These withholding rules also apply to a disability annuity, whether received before or after minimum retirement age.

If you choose not to have tax withheld, or if you don’t have enough tax withheld, you may have to make estimated tax payments.

You may owe a penalty if the total of your withheld