403-b versus an IRA

The 403-b family of plans is the most advantageous of retirement plans for pastors.  For the following reasons a 403-b is more beneficial than an IRA:

  • The contribution limits are higher.

The contribution can be up to 100% of income with a 2024 maximum of $23,000 per year ($30,500 if he is age 50 or older).  In addition, if he has been in the ministry for 15 years, he can add a $15,000 lifetime make-up at a maximum rate of $3,000 per year.

  • You do not pay SE tax on 403-b contributions.

The church makes the deposit (which can be from salary or in addition to salary) directly to the 403-b and the amount deposited is exempt from tax, including the self-employment tax.  Monies contributed to an IRA can be exempt from federal income tax but NOT self-employment tax.

  • Distributions can be designated as housing allowance.

Once you begin to receive distributions from your 403-b (generally when you retire) the distributions can be designated as housing allowance.  Then any amounts you use to pay housing expenses would not be taxable.

Questioning where to go to establish a 403-b?

In summary:

You pay self-employment tax on contributions you make to a traditional IRA.  You pay federal income tax on distributions. You pay self-employment tax and federal income tax on contributions you make to a Roth IRAIRA. You never pay taxes on 403-b contributions.  You pay no taxes on 403-b distributions that are used for housing expenses.  You only pay federal income taxes on 403-b distributions which are NOT used for housing expenses.

Attention: Tax Law is subject to interpretation. Please be advised that the material contained on this Web site is for information only and is not intended to be a substitute for professional legal advice. The Stewardship Services Foundation endeavors to update the information on this site on a regular basis, but cannot guarantee its accuracy at all times.