Housing Allowance: Are you throwing away free money?

Plan Administration, Plan Participation

What is Housing Allowance

When an ordained, licensed, or commissioned minister receives a portion of their compensation as housing allowance, that portion is excluded from gross income and therefore not subject to federal income tax. This can represent substantial tax savings for the minister. Further, when an ordained, licensed, or commissioned person retires, a portion of their 403(b)(9) retirement plan distribution can be received as housing allowance, providing additional tax savings in retirement.

The Minister’s Housing Allowance is one of the greatest tax benefits available to ordained, licensed, or commissioned ministers and comes from Section 107 of the Internal Revenue Code.

Service leaders and those who serve them are faced with a unique set of tax and administrative issues when dealing with 403(b) retirement savings plans, or “Future-Funded Ministry” plans.

Quick Overview of Housing Allowance

  • A tax benefit for pastors.

  • A portion of income the is excluded from gross income, thus is not subject to federal income tax.

  • Gives pastors the ability to take a portion of money out of their 403(b) without the 20% mandatory withheld (its possible they may still owe state or SECA taxes).

  • Also referred to as parsonage allowance or rental allowance.

The following issues impact all those who are licensed, ordained, or commissioned:

  • Housing Allowance prior to retirement

  • Impact of Housing Allowance on Retirement Distributions

  • Payment of SECA taxes on voluntary contributions

  • Roth 403(b) contributions

  • Payment of SECA taxes on voluntary Roth 403(b) contributions

Discover how these issues can be addressed within the 403(b) Retirement Plan context.
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