403(b) withdrawals by a pastor | Ed Slott and Company, LLC

403(b) withdrawals by a pastor

We have a client who is a pastor, currently age 57, plans to retire in 8-10 years. He was told that he could take tax free withdrawals of his 403(b) balance and use it as a housing allowance in exchange for the right to continue living in the parsonage. The client will obviously be at an age where he can take distributions from his plan at that point, but I'm not sure where they are getting "tax free". Having never dealt with pastoral accounts before, I am not sure if this is a quirk in the laws, or if he has been mis-lead. After skimming most of the code about 403(b)'s and reading some of it, I still don't see anything that would apply to this situation. Does anybody have any suggestions or insight? Thanks! Scott A. Garrison, CPA sgarrison@teamfas.com

See following link. It appears that someone is confusing retirement plan distributions with salary benefits for the clergy: http://www.irs.gov/faqs/faq4-10.html

 See below from IRS Pub 517...Retired ministers.  If you are a retired minister, you can exclude from your gross income the rental value of a home (plus utilities) furnished to you by your church as a part of your pay for past services, or the part of your pension that was designated as a rental allowance. However, a minister's surviving spouse cannot exclude the rental value unless the rental value is for ministerial services he or she performs or performed.Currently, see link here:  http://www.irs.gov/publications/p517/ar02.html#en_US_2012_publink100033601 or here: http://www.irs.gov/publications/p517/index.html

A 403b distribution to a retired minister must specifically be stated to include a portion of the distribution as a housing allowance. Without the specific allocation, none of the 403b distribution can be excluded. But if the plan administrator indicates that up to 6,000 of a larger distribution is considered housing allowance, then that 6,000 can be excluded from gross income.


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