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Terminal Leave: Take it or Sell it Back? – Pros and Cons of Both Options

Are you getting out of the military? Trying to decide what to do with your terminal leave? Read more to learn whether to take or sell your terminal leave.
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Whether or not to sell your terminal leave is a perenially popular topic in the military community. Many people feel selling back their hard-earned leave is a black or white issue, but it’s not. It is a very important and emotional financial issue to consider. Separating or retiring can be stressful, so it is well worth your time to plan ahead!

This article will serve to examine the topic, then put numbers on paper.  This should allow you to visualize the difference between taking and selling your terminal leave.

Table of Contents
  1. The Argument for Taking Terminal Leave:
  2. The Arguments for Selling Leave:
    1. Selling Terminal Leave for the Money
    2. Selling Terminal Leave Because You Can’t Take it All
  3. Pros & Cons of Selling Terminal Leave
  4. Deciding to Take or Sell Terminal Leave
    1. 1. How much money do I get if I sell my terminal leave?
    2. 2. What are my available options?
    3. 3. When possible, compare apples to apples. However, you decide what really matters.
    4. 4. Make your terminal leave decision, then move on.
  5. Case #1:  E-5’s End of Enlistment
  6. Case #2:  O-5’s Retirement
  7. Conclusion

The Argument for Taking Terminal Leave:

Most people who argue in favor of taking terminal leave stress that you get the full benefits while on terminal leave (BAH, BAS, incentive pay, health care, etc.). Their main argument is that you are shorting yourself by not getting the full monetary benefits when you sell leave.

Another popular argument for taking terminal leave is that you have earned this time off. And most people with a lot of terminal leave have not taken it because operations tempos were too high, they didn’t have time to take leave, or they chose to save their leave.

All of these are legitimate arguments and have their place.

The Arguments for Selling Leave:

The decision to sell leave usually stems from one of two reasons:

  • Wanting more money, or
  • Not being able to take all your terminal leave.

Selling Terminal Leave for the Money

Many servicemembers sell their leave to get a cash infusion while leaving the military. If you have no immediate plans for employment following separation or need the money, you can choose to work until your separation date and sell the remaining leave.

In effect you will be getting more money than had you taken terminal leave because you would have received full pay and benefits until your separation date; the sold leave is compensation for time off you never took.

Some people view selling leave as missing out on benefits since they could earn their full pay and benefits without working. However, servicemembers who work up to or close to their termination date and then sell their leave will earn their full benefits that entire time.

Selling their leave after that time allows that servicemember to receive an extra chunk of money when they separate. It really comes down to personal preference as to which is better.

Selling Terminal Leave Because You Can’t Take it All

Believe it or not, some units don’t allow people to take a lot of terminal leave. Some units will allow you to take up to 60 days of terminal leave if you are retiring. But some units may cap that amount at 30 days.

Still, other units may be even more strict. Here are two personal examples I’ve seen:

When my wife separated from the USAF (she did not retire), she was told by her supervision she could only take 2 weeks terminal leave. The rest of the leave she will have to sell. This is common for critically manned fields, especially those not retiring.

My brother, a Marine, told me their old Top would allow Marines who were separating after completing their first enlistment to take only 5 days of terminal leave no matter what. I guess a lot depends on the unit.

Separating from an overseas location may also impact your decision.

Pros & Cons of Selling Terminal Leave

Pros to selling leave:

  • Extra money (great for transitions when changing careers, paying bills, paying off debt, etc.)

Cons to selling leave:

  • You do not get benefits such as BAH, BAS, medical benefits, or incentives such as special duty pay for the time off that you earned.
  • You do not get to take time off that you earned.

Other factors to consider:

Leave you sell back is automatically taxed – usually around the 20% range. This is common with large cash payments, bonuses, etc.

You can mix and match. You can elect to take as much terminal leave as your unit will allow and sell back the rest (up to 60 days).

The choice is (mostly) yours. No one can force you to take terminal leave. They can, however, require you to work until a specific date and force you to sell some or all of your leave.

Deciding to Take or Sell Terminal Leave

First, terminal leave is one small aspect of your financial situation.  To learn more about how it fits in the bigger picture, I encourage you to think about the entirety of your military transition.

Part of the terminal leave decision is within your control. However, circumstances may require you to stay until the last possible day.  If so, you may be forced to sell back leave, even if that’s not what you wanted to do. If this is the case, then deal with it, make your adjustments, and move on.

However, there are a lot of people wondering what they should do if given a choice. This goes back to your personal circumstances, opportunities, cash flow needs, and other considerations. Instead of a set of rules to go by, below are a set of questions you should ask yourself:

1. How much money do I get if I sell my terminal leave?

Run the numbers, just like above, based on the amount of leave you have accumulated (don’t forget the taxes). If it’s significant ($10,000 or more), you may also want to see if this puts you into a higher tax bracket (i.e., in example 1, Sgt X could easily break through the 15% tax bracket, which tops out at $37,650 for single filers). If this seems complicated, you might want to talk with an accountant. Your goal here is to get a number. That’s it.

Remember that you only get the value from your base pay when you sell leave. You do not receive additional pay or allowances such as Basic Allowance for Subsistence (BAS) or Basic Allowance for Housing (BAH).

2. What are my available options?

You could be comparing your number to another job, school, or opportunity that may require you to start before you’re officially out. Or, perhaps you already have a job lined up, and would like the additional time to spend with friends and family before you start. Whatever it is, you should think about what option B (as well as options C or D) look like.

3. When possible, compare apples to apples. However, you decide what really matters.

Perhaps that job doesn’t pay as much as you would earn by selling your leave back. However, it might be worthwhile if you’re helping a future company by filling a position that’s been vacant for months. You might get the clock running on something that matters to you, like automatic salary increases (think GS civilian salaries, where your first step increase occurs at the end of year 1). You might just appreciate the peace of mind that happens because you’ve finally ‘cut the cord’ on your old career. Whatever it is, you pick what criteria it is that you’re going to decide against.

4. Make your terminal leave decision, then move on.

You’ve got so many things going on that you can’t afford to second-guess yourself.  Don’t worry about if you got the most money from your accrued leave. Make your decision, schedule it, then move on to the next priority item on your to-do list.

Next, let’s look at two terminal leave case studies, where the decision is pretty clear in each situation.  Your situation might not be this straightforward, but looking at the numbers might help you put things into context.

Case #1:  E-5’s End of Enlistment

Sgt X, an Army E-5, is separating after more than four years from Fort Hood, so he can go to college using the Post-9/11 GI Bill. He has 30 days of leave and is trying to decide whether to sell it back or to use terminal leave. He has deployed to a combat zone, and ½ of his accrued leave is considered combat zone tax exclusion (CZTE) leave. His EAOS is 30 June, and his first class doesn’t start until September, so he’s got plenty of time.

In this case, the primary concern is calculating how much Sgt X would receive in exchange for his 30 days of leave and whether he feels this money is worth it. Since his base pay is $2,614.20 (or a daily pay of $87.14), we should use that as the basis of the calculation.

Normally, you pay taxes on leave that you sell back to the government. However, leave earned in a CZTE is not taxable when sold back, so Sgt X would only be taxed on ½ of his sold back leave. Let’s assume that Sgt X is in the 15% tax bracket, which is fairly reasonable for his pay grade, and that he pays no state income tax. In this case, he is entitled to $2,418.14:

CZTE:     $87.14 X 15 days = $1,307.10

Taxable:  $87.14 X 15 days = $1,307.10 – 15% ($196.06) = $1,111.04

Total:   $1,307.10 + $1,111.04 = $2,418.14

Now, Sgt X has to decide whether his time is worth $2,418.14. First of all, he might not receive this amount.  He would have to check with his pay office to determine his tax withholding rate. If taxes are withheld at a higher rate, he might receive less than his entitlement.  Then he’d have to wait until the next year to file his tax return and apply for a refund. This might not meet his cash flow needs, but in his case, he might not have many other priorities besides getting as much money as he needs before he starts college.

Case #2:  O-5’s Retirement

Commander Y, a Navy O-5, is retiring after 20 years in Washington, D.C. He has a job lined up at $105,000 per year, and his employer wants him on board as soon as possible. Commander X hasn’t deployed recently, so he doesn’t have any CTZE leave, but he does have 60 days of accrued leave (includes leave he will have earned at his date of retirement). He also has a family.

In this case, we need to calculate his entitlement if he sold his leave back, then compare that to how much he would have earned at $105,000 per year. Let’s assume that as a family man, Commander X is in the 25% tax bracket. He has a decent job lined up, so he’s leaning towards taking terminal leave, but he wants to know if he’d be better off staying in and selling it back. His base pay is calculated at O5 > 18 years ($8,388.90).

  • If he sells his leave: Calculate 2 months’ pay (16,777.80) and subtract 25%. This gives you a total of $12,583.35
  • If he takes his terminal leave to start work early: Calculate 2 months’ pay at $105,000 ($17,500), and subtract 25%. This gives you a total of $13,125 in civilian pay.  This is more than what he would have earned by selling his terminal leave back. Additionally, he has two extra months to accrue employer benefits (401(k), health savings plan, etc.).

In Commander X’s case, there is a monetary & non-monetary incentive for him to take terminal leave instead of selling it back.

Conclusion

Selling back leave should be taken on a case-by-case basis. Some people should sell it all, some people should take terminal leave, and for others, a combination works best.

Terminal leave is just one of many financial issues you must address as you transition from active duty.

If you feel overwhelmed by everything, you should talk to your command’s financial counselor or find a fee-only financial planner.  Working with a professional should help you achieve the peace of mind you deserve as you transition.

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About Forrest Baumhover

Forrest Baumhover is a Certified Financial Planner™ and financial planner with Lawrence Financial Planning, a fee-only financial services firm. As a retired naval officer, Forrest helps veterans, transitioning servicemembers and their families address the financial challenges of post-military life so they can achieve financial independence and spend more time doing the things they love.

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  1. YoureWelcomeSix says

    There is a problem with your math in scenario 2: You didn’t take into account that if he sells his leave and stays in the army an extra two months he will continue to receive his O-5 Paycheck plus BAS plus DC BAH. This is far more money than two months of his civilian pay job.

    • JD says

      If he takes terminal leave for those two months, he will also get his O-5 paycheck plus BAS plus DC BAH for those same two months.

      The article was correct. By selling, he gets ~$12K in addition to his pay for those two months. By using terminal leave, he gets the income from his new job (~$13K) in addition to his pay for those two months.

  2. Free To Sell says

    Buy and Sell Products at your expected price. We are Selling Quality Products all over New Zealand. It is totally online and free to sell on Eekom.

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