Guide
Retirement planning for ministers
Ministers save through church and denominational plans and IRAs, and a retired minister may be able to receive a tax-free housing allowance from pension distributions.
Common retirement vehicles
- Denominational pension plans, often run by a pension board.
- 403(b) plans, including church retirement income accounts for church employers.
- IRAs and Roth IRAs, subject to their own limits and income rules.
Check IRS.gov for current annual contribution limits, which change from year to year.
How contributions are taxed
- Church contributions. Employer contributions generally are not income-taxed and are not subject to self-employment tax.
- Your own salary deferrals. Salary-reduction (elective) deferrals that are not included in your gross income are also left out when figuring self-employment tax, according to IRS Publication 517. They reduce income tax now, and they reduce your SE tax base too.
The compensation package planner lets a church model a retirement contribution alongside the rest of the package.
Housing allowance in retirement
A retired minister may exclude from income tax part of a pension or retirement distribution if it is designated in advance as housing allowance by the plan administrator, church, or denomination. The same three limits apply: the least of the designated amount, actual housing expenses, and fair rental value plus utilities. The exclusion is for income tax only, and retirement distributions are not subject to self-employment tax.
What retired ministers should do
- Ask your plan administrator whether it designates a housing allowance and how to request it.
- Do it before the year it covers.
- Track your actual housing costs with the expense list.
Social Security and retirement planning
A minister with an exemption from Social Security needs other sources for retirement income. If you are in that position, see Should I opt back into Social Security?
Questions to ask a professional
- How much of my compensation should go to salary versus employer contributions?
- Does my plan allow designated housing distributions?
- How do my deferrals affect my SE tax?