Opportunity Cost vs. Opportunity Gain

Do you look back in regret at the lost opportunities in your life?

So many live a life of regret. They spend their productive hours ruminating on what could have been, what should have been, what might have been or the failure of what did occur. 

Job reflects on his birth this way (Job 3:5): 

Let the darkness and utter gloom claim that day for its own. Let a black cloud overshadow it, and let the darkness terrify it.

Are you discouraged? Job certainly nailed the emotional component.

We can all identify with emotion. As leaders, we come face to face with discouragement. How often? If leading, then often in some part of each day.

In addition to discouragement, there is simply the issue that “stuff happens.” Plans go awry.  Sometimes it is because of poor planning, sometimes it’s poor execution, and sometimes outside, unexpected realities totally destroy the best of plans. 

Whether it be a personal issue or response to one, or a ministry/business issue or response to one, each and every activity has an outcome. There is a gain or loss, moving forward or backwards, there is a net result of all our plans, actions, and implementation strategies. 

Peter Drucker said: "Yesterday's actions and decisions, no matter how courageous or wise they may have been, inevitably become todays problems, crises and stupidities." 

Now there is a reality we can all identify with!

The opportunity lost I'm discovering is the amount of productive time that "retirees" could provide to ministries.

While many do, most Christian workers, ministry minded leaders, and business oriented Christians, do not even begin to think about ministry in their retirement years until after they retire. Let's examine the reality of lost opportunity and the potential for gain.


The definition of OPPORTUNITY COST IS:

The loss of potential gain from other alternatives when one alternative is chosen. 


We know that each choice has consequences. The idea of Opportunity Cost allows us to measure that cost. 

Conversely, the idea of Opportunity Gain allows us to measure the incremental gain for a decision, choice, and course of action. 

How big is the opportunity for gain in the Kingdom?

Because of our longevity, a tremendous opportunity exists for the Kingdom. When understood and acted upon aggressively, the size of the Gained Opportunity is huge. When not understood, or addressed, the size of the Lost Opportunity is monumental.

 Here it is: 

  • 20% of the population equaling about 50,000,000 will be “elderly” by 2030.

  • If we even take a decade, a 10 year period, and calculate a number equal to “availability” of productive time, the number is more than huge.

Let me try to figure it out.  You can argue with the numbers but you’ll see the point.

  1. 12 hours per week of productive time

  2. 52 weeks in a year = 624 hours

  3. 624 divided by 8 hours per day = 78 days a year

  4. 78 day x 50,000,000 people = 3,900,000,000 days per year

  5. Times 10 years equals 39,000,000,000 day of opportunity lost

  6. That equals over 106,000,000 years.

If your ministry had additional productive input equal to 500 hours a month, how would you manage it and what would be the impact for the Kingdom?  Let's think about this some more and address it in future times together. 

This is just a small example and only takes a 10 year period.


Go to Future Funded Ministry for more information on creating future opportunities for the Kingdom.

Why It's Important to Communicate With Your Retirement Plan Provider

When you offer a retirement plan to your employees, you are taking on the responsibility of fiduciary.

It is your responsibility to oversee and make decisions about your retirement plan for the benefit of the participants. This is also why it’s a good idea to frequently communicate with your retirement plan provider.

Two ways that you can create an impactful retirement plan are:

  • Actively partnering with your plan provider to protect your plan and increase employee satisfaction.

  • Following the rules that are now in place and knowing what it takes to be in compliance. Being prepared and protected.

Actively partnering with your retirement plan provider means:

  1. Being engaged with the employer support systems available to simplify your work.

  2. Being aware of and directing employees to the participant servicing options.

  3. Staying in constant communication with your plan provider (regarding new hires, census data, changes to the plan, etc).

  4. Being aware of ongoing plan maintenance (reviewing your plan’s terms, reports, etc).

IRS  and the Department of Labor

Now that new regulations are in place, the regulatory entities move to the enforcement stage. Target segments are companies owned by foreign entities, small businesses, and 403(b) non-profit organizations. They have expressed the belief that 77% of these plans are not in compliance.

The result is that we must be prepared for the audit when it comes.

Helpful Retirement Plan Compliance Resources

Helpful Retirement Plan Compliance Resources

Retirement Plan compliance is critical as you're a Christian organization and an example to others. Two governing agencies that oversee retirement plans are the IRS and The Department of Labor. You probably don’t want to become an expert on all of the regulations but you certainly want to arm yourself in case one of them shows up on your doorstep.

What Is Housing Allowance For Ministers?

The Minister’s Housing Allowance—sometimes called a parsonage allowance or rental allowance—is excludable from gross income for federal and state income tax purposes, but not for self-employment tax purposes. When a portion of compensation is received as housing allowance, federal and state taxes are directly reduced. Self-Employment Contributions Act (SECA) taxes are not directly reduced.

Who Can Receive the Minister’s Housing Allowance?

In order to receive the Minister's Housing Allowance, you must be an ordained, licensed, or commissioned minister. 

The housing allowance is an exclusion from income permitted by Section 107 of the Internal Revenue Code. It is not a deduction. In other words, a housing allowance is money that is not reported as income. A housing allowance is never deducted because it is never reported as income in the first place. However, the minister is required to include any excess housing allowance as income on their Form 1040.

Whether the minister owns or rents a home, it is essential that his or her employing organization designate a housing allowance.

Housing allowances must be:

  1. Adopted by the organization board or leadership

  2. Recorded in written form (such as minutes)

  3. Designated in advance of the calendar year

However, organizations that fail to designate an allowance in advance of a calendar year should do so as soon as possible in the new year. The allowance will operate prospectively.

Click here for more Housing Allowance questions and answers.

Envoy does not offer legal or tax advice and encourages that you consult with a lawyer and/or professional tax advisor for personalized tax advice.


 

To learn more about housing allowance, visit our Help Center or download our FREE Housing Allowance eBook.

 

What is a 403(b) Plan?

A 403(b) retirement plan:

  • Is typically established by not-for-profit 501(c)(3) employers, hospitals, self-employed ministers, and public education organizations.

  • Allows eligible employees to make salary reduction contributions into the plan on a pre-tax and/or after-tax (Roth) basis. 

If the contributions are pre-tax, earnings within a 403(b) plan accrue on a tax-deferred basis. If they are after-tax (Roth), earnings within a 403(b) plan accrue on a tax-free basis. Certain restrictions apply.

Role of the Employer

Employers offering a 403(b) plan may make employer matching or employer basic (non-elective) contributions to the plan on behalf of the eligible employees. 

As a general rule, the administration associated with a 403(b) plan is less involved than the administration of a 401(k) plan. 

403(b) Plans for Christian Ministries

Today 403(b) retirement plans provide significant benefits and advantages for ministries.

Since Christian ministries often have unique needs, it's important to tailor the retirement plan to those needs. It's also crucial to be aware of, and benefit from, the tax code and the Department of Labor rules.

Some Benefits of a 403(b) Retirement Plan

  • Most plan sponsors are not aware of the specific 403(b)(9) church retirement plan rule that makes the minister's voluntary contributions pre-SECA tax in addition to state and federal income tax.

  • The code allows missionaries working abroad to qualify for the foreign earned income exclusion, which exempts their first $102,000 of earned income from taxes.

  • A Roth 403(b) retirement plan allows missionaries abroad to contribute to a Roth 403(b) resulting in tax-free growth and distribution. A Roth 403(b) is an outstanding savings vehicle for your employees. Are you offering both a 403(b) and a Roth 403(b) plan? This is just one example.

If you're not taking advantage of these benefits now, perhaps a change in providers is necessary.

Learn more about Church Retirement Plans.


Interested in learning more about 403(b) retirement plans? Contact Envoy Financial and one of our specialists would be happy to speak with you.

Your Money Needs Purpose

As a postscript to Rick Warren’s Magnus Opus, The Purpose Driven Life, he suggests that money and purpose do mix. Let’s take this one step further; it is difficult to fulfill a purpose without money as a component. Seldom is it an issue of too much, or too little, but it is a matter of how you use what you’ve been given.

How are resources to be used?

Just like the other resources God provides—time, talent, energy, intelligence, wisdom, and money are to be used to fulfill God’s purpose for our lives and for His honor and glory.  Sounds good, but hard to do!

Resources defined

There is a direct correlation between what we have, how we use it, and our faithfulness to God’s call on our lives.

The definition of resources is:

The availability of support materials, like money, and other assets, like intellectual property, used to function effectively and achieve a mission or goal.  

There are two keys factors. One is to have sufficient resources to support the cause and the second is to use them wisely to achieve the purpose.

Each season or stage of life must be funded. In other words, there must be enough money to breathe, live, and manage our affairs.  As a young person, our funding source was our parents or guardians. Entering into adulthood, it became our job or profession. During the 4th quarter of life, it is the savings we have accumulated to fund our future ministry. If we have not prepared, we are either totally dependent on the government, others, or we continue to work.

The purpose of money

The purpose of money is to support God’s plan for your life, and as a lever, to multiply that impact beyond what we can do without it. God’s call on our life is both universal and specific. Universally we are to represent Him to all we meet and specifically to fulfill our role in building His Kingdom.

Money and purpose do mix. It is always a good idea to review the purpose and to  take inventory of all our resources. It is a good idea to evaluate how effective and efficient we are in managing, using, and leveraging  them. 

This raises the personal question, "How are you doing?"

Housing Allowance Frequently Asked Questions

What is Housing Allowance?

  • A tax benefit for ordained, licensed, or commissioned ministers.

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

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

  • Also referred to as parsonage allowance or rental allowance.

Why does one get Housing Allowance?

The idea is that pastors use their house as part of their regular duties.

Who can take Housing Allowance?

A person who is an ordained, licensed, or commissioned minister.

Is there a limit to the amount of Housing Allowance?

Housing Allowance cannot exceed the lesser of 100% of compensation or actual housing expenses.

 

What if they want to take more than their Housing Allowance limit?

They can and can even do it on the Housing Allowance form.  But they will be taxed on the extra amount.

What is required to take a Housing Allowance distribution?

Download the Distribution Authorization Form - Special Housing Allowance Tax Treatment. Complete all sections of the form and return it to your former employer. Each year, you need to provide Envoy with a Housing Allowance Authorization letter from your organization, on letterhead, signed by an authorized individual, and  indicating the amount of Housing Allowance approved for the year.

Is there a due date on the letter?

The letter must be dated by December 31st of the previous year, but the letter can be handed in later than that.  

Who approves it?    

It must be approved by the board at the church by December 31st of the previous year. 

Is there an age limit?    

Yes, the pastor must be 59 ½ or older to take it from their 403b and avoid the taxes.    

What is the fee?    

$25 for a one-time and $10 a time for a periodic    

What if they are still employed?

Technically they can take it, BUT:

  • They still need to be 59 ½ or older,

  • The plan needs to allow in-service distributions,

We need proof that they are not receiving their housing allowance in other ways (church is paying them the housing allowance).

Can they take Housing Allowance distribution if they rolled over to an IRA or 401(k)?

No, this is why it is important for pastors to keep their money in a 403(b) and not rollover into an IRA or 401(k).

However, if they get a new job, they can roll back into a 403(b), and then have housing allowance eligibility.

How will this look on their tax form?

The total amount taken from the 403b for the year will show up in the “Gross Amount” section, but the amount in the “Taxable Amount” section will be the gross amount minus the housing allowance. So the housing allowance will not show in the taxable amount. The form you will get is a 1099.

Is this money reported as income?

No. The employer does not report it as income. However, the pastor will include any excess housing allowance on their Form 1040.

What is Excess Housing Allowance?

Say in December of the previous year the pastor goes to his board and says that his housing allowance needs for next year will be $12,000. But at the end of the year he adds up his expenses and they were only $11,000. The extra $1,000 would need to be reported as income.

Can they set up a recurring/periodic payment?

Yes, but it if their housing allowance amount changes, the account holder is responsible for letting us know and will need to fill out a new form with a new Housing Allowance letter.

The account holder should also send us a new Housing Allowance letter each year, even if it hasn’t changed.

Can they stop a recurring/periodic payment?

They can call or email us to let us know to stop it.

Are there sample Housing Allowance letters

Yes, have them log on to the web portal and go to the Help/Resource Center > Distribution > Housing Allowance > Scroll down to the bottom.

Where can I look for more tax law info?

Section 107 of the Internal Revenue Code

Can it count towards RMD?

Yes, they can take out their housing allowance without the majority of taxes, and the IRS will see the distribution as an RMD. 

If their RMD is larger than their housing allowance they would need to take out more and it would be taxed like normal.

Understanding the critical differences between Faith-Based and Secular Retirement Plans

Understanding the critical differences between Faith-Based and Secular  Retirement Plans

The subject of retirement plans tends to be so overwhelmingly ”secular” that little thought has gone into this subject. Is there even such a thing as a faith-based retirement plan? And if there is, what does it look like and how is it different from a secular retirement plan?

3 Simple Steps That You Should Take for a Better Ministry Retirement Plan

3 Simple Steps That You Should Take for a Better Ministry Retirement Plan

Is your retirement plan too complex and taking a lot of your time? If it’s too complicated for you, it will definitely be too difficult for your employees to understand. And if it's not easy for them to understand, then you are missing key pieces. Your retirement plan is too valuable not to put the right parts totally in place.

Is The Minister’s Housing Allowance Taxable?

What is the Minister’s Housing Allowance?

The Minister's Housing Allowance is a great tax benefit—a great financial benefit—for those who are licensed, ordained or commissioned as a Minister. The amount of the housing allowance must be approved by your Church Board and reflected in their minutes.  

Is The Minister’s Housing Allowance Taxable?

When the approved amount of compensation is determined to be a Housing Allowance, that amount is not taxed by either the Federal or State taxing authorities. Note, it does not reduce your Self-Employment Contributions Act (SECA) taxes. You pay no Federal or State tax on the determined amount.

The Minister’s Housing Allowance is an exclusion from income permitted by Section 107 of the Internal Revenue Code. This amount is not a deduction from your income—it is an amount of income not reported. However, any excess over the determined amount must be reported as income.

Housing Allowance During Retirement

The Housing Allowance comes into play again during retirement. The determined amount of Housing allowance, during retirement, can be used to shelter the distribution from a 403(b)(9) Church Plan. The net result is that income was sheltered during your years receiving compensation, and the amount taken out of your retirement plan is sheltered from tax too.

Click here for more Housing Allowance questions and answers.


To learn more about housing allowance, download our FREE Housing Allowance eBook.

Envoy does not offer legal or tax advice and encourages that you consult with a lawyer and/or professional tax advisor for personalized tax advice.