Before you get to the math on whether purchasing WA DRS service credits makes financial sense, there are five rules about how the program actually works that you need to understand first. Get one of these wrong, and it can completely change whether a service credit purchase is even possible, or worth it, for your situation. These rules apply whether you are on TRS, PERS, or SERS, though the specific numbers in your plan’s administrative factor table will differ.
1. You Must Be a Vested Member, and You Can Only Purchase at Separation
Anyone who is a vested member of their DRS plan is eligible to purchase service credits. But there is a timing catch: as far as the process goes, you can only purchase service credits when you retire or separate from service with the State of Washington. When you fill out that final application, there is a specific section where you elect to purchase service credits. You cannot simply buy them at any point during your career.
That timing detail matters for planning purposes. If you know you want to purchase service credit, you cannot casually decide on it a few years down the road while still working; you need to have your funding source ready to go by the time you actually file your retirement or separation paperwork. Building that decision into your retirement planning early gives you time to save toward it, rather than scrambling to find the cash at the last minute.
2. You Can Buy 1 to 60 Months, and Age Drives the Price
Service credit can be purchased in increments from as little as one month up to a maximum of 60 months, or five years. The cost is based on your age at the time of purchase, using an administrative factor table from DRS. As a general rule, the older you are when you purchase, the cheaper it is, since the state expects to pay out that increased benefit for a shorter stretch of time.
This age-based pricing means the same 60-month purchase can cost noticeably different amounts depending on exactly when in your career you make it. It also means there is no single “right” number of months to buy for everyone. Someone with a smaller gap in their service history might only need to purchase a handful of months, while someone using this as a broader strategy to boost their pension might purchase the full five years if their budget allows for it.
3. This Is a Permanent, Irrevocable Decision
This is the rule that catches people off guard the most. Purchasing service credit is essentially buying an annuity from the state. Once you hand over the money, it belongs to DRS. There is no changing your mind afterward and no getting that money back. Because this decision cannot be undone, it is worth doing your homework and running your own numbers before you commit to it.
Compare this to a typical investment account, where you can generally sell and withdraw your money if your circumstances change. A service credit purchase does not work that way. Once the paperwork is signed and the funds are transferred, that money is converted permanently into a slightly higher monthly pension payment, for better or worse. This is exactly why the break-even and rate-of-return calculations matter so much, since you are locking in a decision you cannot walk back later.
4. It Does Not Unlock Early Retirement Eligibility
This is a common misconception. Early retirement eligibility is based specifically on years you physically worked, not on total service credit. If you are 62 with 28 years of actual working service, you cannot simply purchase 2 years of service credit to hit the 30-year mark and walk out the door the next day with full early retirement eligibility. That threshold has to be met with real years on the job.
That said, purchased service credit years are not worthless outside of that early retirement threshold. They still count toward your benefit calculation using the same formula as your other years, whether that is the 1% formula on Plan 3 or the 2% formula on Plan 2. They are also still eligible for the annual cost-of-living adjustment, typically 0% to 3%, that gets applied each July once you start collecting your pension.
Here is a quick example of how this plays out. Say you are 62 years old with 28 actual years of service, 2 years short of the 30-year threshold for full early retirement benefits. Purchasing 2 years of service credit will not get you to that 30-year mark. You would still be treated as someone with 28 years of physical service for early retirement eligibility purposes, even though your pension benefit calculation would reflect a total of 30 years. It is a subtle but important distinction that trips a lot of people up.
5. The Money Has to Come From Somewhere Other Than Plan 3
If you are on Plan 3, you cannot use your own Plan 3 defined contribution balance to pay for a service credit purchase. The funds have to come from another source entirely, such as personal savings, an IRA, your DCP account, or a 403(b).
Before tapping into any pre-tax retirement account to fund the purchase, be aware there can be real tax consequences. Pulling money out of a pre-tax account to pay for a service credit purchase can leave you with an unexpected tax bill at the end of the year, so it is worth planning that withdrawal carefully rather than treating it as free money sitting on the side.
Think about it this way: if a service credit purchase costs $45,000 and you pull that entire amount out of a pre-tax 403(b) or IRA in one year, that withdrawal gets added on top of your regular income for tax purposes. Depending on your tax bracket, a chunk of that $45,000 could go straight to the IRS instead of into your pension purchase. Using after-tax savings, or spreading a pre-tax withdrawal across more than one tax year if your timeline allows it, can help soften that hit.
A Quick Checklist Before You Apply
Before you check that box on your retirement application to purchase service credits, it helps to run through a short checklist.
- Confirm you are a vested member of your plan.
- Know exactly how many months or years you want to purchase, up to the 60-month maximum.
- Pull the current administrative factor for your age and plan from the DRS website, since it changes every year.
- Identify a funding source outside your Plan 3 balance, and understand any tax impact if it is coming from a pre-tax account.
- Remember that this will not shorten the years-of-service requirement for early retirement eligibility, only your benefit calculation.
- Accept that once the purchase is made, it cannot be reversed.
Putting the Rules Before the Math
Once you know these five rules, the actual cost and rate-of-return calculation is straightforward: you take your benefit formula, multiply it by the years you want to purchase and your monthly salary to find your benefit increase, then divide that by an age-based administrative factor to find your cost. If you want to see that full calculation worked out step by step with real numbers, we cover it in detail in our companion article on calculating the cost of buying service credits.
Because this is a one-time, irrevocable decision that also has tax implications depending on how you fund it, it is worth talking through your specific numbers before you sign anything. You can schedule a personal meeting and we will walk through your eligibility, funding source, and the math together.
Frequently Asked Questions
Can I purchase service credits while I’m still actively working?
Generally, the purchase happens as part of your retirement or separation paperwork, not while you are still actively employed and years away from leaving. Check with DRS directly about the exact timing rules that apply to your situation.
Can I use my Plan 3 savings to buy service credits?
No. The money must come from a source other than your Plan 3 defined contribution account, such as personal savings, an IRA, DCP, or a 403(b).
Will purchasing service credits let me retire earlier?
Not for early retirement eligibility purposes. That threshold is based on your actual years of physical service, not purchased service credit. Purchased credits do still increase your benefit calculation and remain eligible for cost-of-living adjustments.
Can I change my mind after purchasing service credits?
No. This is a permanent, irrevocable decision, similar to buying an annuity. Once the money is paid, it belongs to the state and cannot be refunded, which is exactly why it is worth carefully running your own numbers beforehand.
Are there tax consequences to purchasing service credits?
There can be, particularly if you fund the purchase by withdrawing from a pre-tax retirement account. That withdrawal can create a tax bill, so it is worth planning the funding source carefully rather than assuming there is no cost beyond the purchase price itself.
How much service credit can I purchase?
You can purchase anywhere from 1 month up to a maximum of 60 months, or 5 years. The exact amount you choose to purchase is up to you, within that range.
Does purchasing service credit affect my cost-of-living adjustment?
No, purchased service credit years are treated the same as your regular years when it comes to the annual cost-of-living adjustment, typically 0% to 3%, applied each July once you begin collecting your pension.
Does the same purchase cost the same at every age?
No. The cost is based on the administrative factor tied to your exact age at the time of purchase, so the same number of months can cost noticeably different amounts depending on when in your career you buy them.
P.S. If you found these rules helpful and want more videos like this on WA DRS pension options, come join a community of over 150 members working through these exact decisions together, with free courses and resources included.
