A unique benefit for funds distributed to ministers who contributed to a denominational 403(b)(9) church retirement plan (only) is the designation of distributions from the Plan as housing allowance.

Unlike the annual exercise for ministers to request housing allowance designation from their church each year, FCMM distributions to ministers are designated by the FCMM Board of Trustees as 100% housing allowance eligible. The retired pastor must keep records of actual housing expense in order to document the amount of annual costs that were actually used for housing expenses. 

The eligibility for housing allowance designation for retirement distributions is that the funds were contributed while the minister was eligible for housing allowance (i.e. treated as a minister for tax purposes). Status at the time of distribution does not matter.

Just as during active employment years, the same IRS guidelines apply to the limits for non-taxable housing allowance distributed from church plan retirement funds – the housing allowance exclusion from taxable income is the lesser of three factors: (1) The amount designated; (2) The amount spent for housing; or (3) The fair rental value of similar housing.

Any amount above those qualified housing expenses would be subject to income taxes, reported by the minister for tax filing in a similar way to unused housing-allowance-designated income during employment.

The IRS permits the housing allowance exclusion only for the original participant and not to distributions made to a surviving spouse.

For information on tax reporting for housing allowance, see the FCMM website article Quick Guide to Tax Reporting for Retirement Distributions – 1099R.