Military Basic Pay Deposit: Essential 3% Rule and the 2-Year Trap
Buying back military time is one of the few retirement moves with a price tag you can calculate exactly. The formula is short, and the number is usually smaller than people expect.
The short answer: The FERS military basic pay deposit is 3% of the basic pay you earned during post-1956 active duty — not your current federal salary, and not including allowances. You have two interest-free years from the date you are first covered by FERS before interest starts compounding annually.
Key takeaways
- The FERS deposit is 3% of military basic pay for post-1956 service (OPM CSRS/FERS Handbook, Chapter 23).
- Interest is free for 2 years from the date first covered by FERS, then compounds annually at a variable rate set each year by the Treasury.
- Use RI 20-97 to request estimated earnings from your military finance centre.
- Use SF 3108 to apply to make the payment through your agency.
How is the military basic pay deposit calculated?
Only basic pay counts. Housing allowance, subsistence allowance, hazardous duty pay, combat pay, and bonuses are all excluded. That distinction is why the deposit is far cheaper than people assume — for many service members, basic pay is well under half of what hit the bank account.
The arithmetic behind the military basic pay deposit is one line: total post-1956 military basic pay × 3%.
What does that cost in practice?
Take four years of active duty with total basic pay of $90,000.
- Deposit: $90,000 × 3% = $2,700
Now the other side of the ledger. Those four years become creditable FERS service. At a high-3 of $100,000 and the standard 1% multiplier, four added years raise the annual pension by $4,000 — $100,000 × 1% × 4.
At those figures the deposit is recovered in well under a year of annuity payments. Whether it is the right move for you depends on your own basic-pay total, your high-3, how long you expect to draw the pension, and whether you receive military retired pay — which generally has to be waived for the service to count.
When does interest start, and how much does waiting cost?
The grace period is two years from the date you are first employed subject to FERS — or two years from your return to FERS-covered service if the military service came later. After that, interest is assessed and compounded annually on the outstanding balance, at a variable rate the Department of the Treasury sets each year.
Waiting does not change the 3% military basic pay deposit itself. It adds compounding on top of it, which is why the deposit gets more expensive the longer it sits, even though the underlying military pay never changes.
Which forms do you actually need?
- RI 20-97 — Request for Estimated Earnings During Military Service. This goes to the finance centre for your branch and produces the basic-pay total the 3% is applied to.
- DD 214 — your discharge paperwork, submitted with the request.
- SF 3108 — Application to Make Service Credit Payment. This goes to your agency, which forwards it to OPM.
For eligibility, the waiver of military retired pay, and the deadlines around separation, see our parent guide to the FERS military deposit buy-back. If you are weighing it against other service credit, our post on FERS redeposits covers the refunded-service case.
Frequently asked questions
Is the deposit 3% of my current federal salary?
No. It is 3% of the basic pay you earned while on active duty, often decades ago and at much lower pay rates.
Does this apply to CSRS the same way?
No. CSRS uses a different percentage and the separate “Catch 62” rule. This post covers FERS only.
Can I pay it in instalments?
Agencies generally accept payroll deductions or lump sums. The deposit must be completed before you separate for retirement.
Run the numbers on your own service
The deposit calculation is simple once you have the earnings statement in hand. Fed Pilot’s free federal retirement benefits workshops cover military service credit alongside the rest of the FERS pension computation. Register for an upcoming workshop.
