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Why Is Retirement So Different for Ministers?

Every minister should have a clergy-specific 403(b) retirement plan to preserve and maximize their housing allowance and preserve it through out retirement. Ministers have amazing benefits and ways to use them that the average employee does not. These clergy specific plans offer unique tax advantages available only to ministers. A clergy-specific 403(b) retirement plan will save a minister thousands and thousands of dollars not available through any other retirement plan. A clergy 403(b) retirement plan is not a new idea. Many denominations have offered them to their ministers for decades. Unfortunately, some non-denominational churches are not aware of why it’s so important and miss out on its benefits. Here’s what you need to know about retirement planning:

What Is a Clergy Specific 403(b) Plan and How Do They Work?

  • A clergy 403(b) plan is a particular type of retirement plan created to preserve and utilize the minister’s tax benefit of the housing allowance. A clergy 403(b) is often confused with the secular 403(b) offered by hospitals or schools. A secular 403(b) does not offer any tax advantages to a minister.
  • Contributions into a clergy 403(b) plan are not subject to federal income tax, social security tax, or state tax. Consequently, ministers save significant tax by putting money into a clergy 403(b) plan.
  • What’s more, there are amazing strategies available to ministers that are not available to secular employees that a qualified clergy tax or retirement specialist can show you.
  • Distributions out of a clergy 403(b) plan are tax-free as housing allowance. Ministers can take money out of a clergy 403(b) tax-free up to the amount of their housing expenses.
  • Money contributed into a clergy 403(b) plan AND money distributed from a clergy 403(b) can both be tax-free unlike any other retirement plan. Additionally, the money grows tax-free inside the retirement plan until distributed. This is a huge advantage for ministers.

Other Retirement Plans

  • Many churches use traditional, secular retirement plans, often at the advice of a well-meaning financial planner, such as 401(k)s, SEP IRAs, secular 403(b)s, or allow their ministers to contribute to traditional IRAs. These plans are great options for secular employees but completely miss the tax advantages of the clergy 403(b) costing the ministers tens of thousands of dollars (for some it can be a 6 digit sum) of unnecessary tax over the course of their careers.
  • Traditional, secular retirement plans typically cost more in administrative fees and time for the church. These plans are subject to ERISA (Employee Retirement Income Security Act) rules which impose additional restrictions. Churches are specifically exempt from ERISA rules unless they opt for a secular employer sponsored plan.

Clergy 403(b) Advantages

  • When set up properly, a clergy 403(b) stays with the minister, meaning that even if the minister changes churches or separates service.
  • As long as the funds stay in the clergy 403(b), the minister can take the funds out of the clergy 403(b) tax-free as housing allowance even if the minister leaves the ministry altogether.
  • The funds in a clergy 403(b) are accessible when the minister separates service from the current church, or when the minister turns 59 ½ just like other retirement plans.
  • The Clergy Advantage 403(b) is free for the church to set up (which is not the case for most 403(b) accounts and almost no 401(k) accounts). It also works exactly the same way a 401(k) does for their secular employees, so a church can offer a clergy 403(b) to their entire staff without the need for a separate clergy plan.
  • There are a number of strategies available only to ministers that are often overlooked. Don’t lose your housing allowance in retirement or miss opportunities to save. Schedule a free consultation or be our guest and find great resources to help you learn about your amazing retirement benefits.
  • It pays to have a free conversation with a qualified clergy retirement specialist who understands your benefits. Click here to learn more.
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For over 40 years we’ve been passionate about the profound impact we can have on ministers’ personal and professional success. Our clergy tax specialists focus on simplifying clergy tax complexities, identifying savings and financial opportunities for ministers and churches that they often don’t even know exist.