What is The Process Like?
One of our trained experts will sit down with you and your team to walk you through your financial journey. Educating you about special laws and advantages you have working in the ministry field. After you have all the necessary education, we will determine what is the best option for your financial goals. Our goal is to set you up for financial security now and in the future. Your financial peace of mind will allow you to keep spreading the gospel.
1. What are the Funding Retirement Limits for 403(b)?
Participants of 403(b) plans have contributions limits as follows:
- 403(b) investors can elect to defer up to $18,500 of their salary and invest it into a 403(b) plan for the tax year
- Plan participants over the age of 50 can contribute an additional $6,000 in so-called “catch up” funds for the year, while some 403(b) plan members can contribute an additional $3,000, if they have 15 or more years of experience in the field.
Here is how the 15-year model, known formally as the 15-year service rule, works.
If a 403(b)-eligible employee has at least 15 years of service, that employee may put away an additional $3,000 annually into his or her retirement plan, if the 403(b) plan contributions have not been maxed out in prior years. For example, in the previous year, that means a 403(b) plan contributor with 15 years or more on the job could stash away $21,500.
There are limits to the 15-year contributions rule, but there are changes to the rule now.
Employers can also contribute to an employee’s 403(b) plan, much like a company can contribute matching funds to employee 401k plans. There is a limit however on what 403(b) employers can contribute.
2. What is a 403(b)(9) Church Plan?
A 403 (b)(9) plan is a defined contribution plan that is designed specifically for the unique needs of evangelical churches or church organizations. Even though it is similar to other 403(b) and 401(k) plans, 403(b)(9) plans are not subject to certain ERISA requirements, like annual 5500 reporting. The 403(b)(9) plans also offer retired ministers the ability to have retirement distributions designated as housing allowance.
All employees are eligible to participate unless the plan specifically excludes them.
The employer has some flexibility in determining which employees are eligible. For instance, the employer can have certain requirements like age and/or service requirements before an employee can participate in the plan.
3. What is Housing Allowance?
Individuals such as minister and members of the military receive an amount of money in compensation for basic living expensed for employment situations. Housing Allowance amounts are not taxable on your income tax but are subject to taxation under self-employment laws. Allowance for the members of the military and other job positions are determined based on various factors including the cost of living, geographic location, sale of pay, and dependency/marital status.
A housing allowance is a portion of clergy income that may be excluded from income for federal income tax purposes (W-2 “Box 1” wages) under Section 107 of the Internal Revenue Code. To be eligible, the pastor/clergy must be a “minister of the gospel” and be ordained, licensed, or commissioned by a church, convention or association of churches.
Tax regulations specify that for the housing allowance to be excluded from federal income taxes it must be designated in advance of payment by official action of the employing body or integral agency. The designation must be in writing and should be contained in the minutes of the board or finance committee, if appropriate. The IRS would not accept housing designations that were self-approved. The housing allowance resolutions can be adopted or amended at any time.
100% of compensation can be designated as housing allowance, but this does not necessarily mean that this is the amount which can be excluded from income taxes. IRS Publication 517 provides a definition of this housing limitation.
If you own your home and you receive as part of your pay a housing or rental allowance, you may exclude from gross income the smallest of the following items:
- The amount actually used to provide a home
- The amount officially designated as a housing allowance
- The fair rental value of the home, including furnishing, utilities, garage, etc.
For any specific question regarding Housing Allowance or how we can assist you in preparing for your retirement now for you in transitioning to your next ministry and making sure your retirement plan is in place now, please call our team today