One of the significant advantages of a 403(b)(9) church plan like FCMM's is the opportunity for ministers and missionaries to receive the clergy housing allowance tax benefit when retirement benefits are drawn from your FCMM account, whether through monthly income benefits (annuity payments) or periodic withdrawals.
A common question often arises: “How can I get ‘housing allowance’ when I am no longer employed by a local church or serving in the mission field?” The IRS considers all retirement benefits as “deferred income.” Thus, if contributions were made to one’s retirement account in FCMM when that person qualified for the minister housing exclusion tax benefit, then the person also qualifies for the tax advantage on retirement distributions from a church plan (only), even though he or she may no longer be serving in a full-time ministry position.
Distributions from housing-allowance-eligible-contributed funds in the Retirement Plan are designated by FCMM as 100% housing allowance eligible. The retired pastor must keep records of actual housing expense in order to document the amount of the annual payments that were actually used for housing expenses.
Just as during active employment years, the same IRS guidelines apply to the limits to 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. If one is having a housing allowance designated from an employing church while also drawing retirement funds from FCMM, then the combined housing allowance cannot exceed the lesser of those three factors.
There is a significant tax advantage for credentialed clergy to have their retirement funds in a 403(b)(9) church plan. It can stretch the value of retirement dollars 15% or more. And even if a mortgage is fully paid off at retirement time, other related housing expenses such as property taxes, insurance, all utilities, general upkeep, and condominium fees can be applied to housing expenses. That’s why we believe every EFCA church and ministry should be using a “church plan” for its staff members, and we also believe FCMM is the best church plan out there when you consider the following factors: investment options, flexible benefit arrangements, IRS compliancy assurance, competitive fees, and excellent customer service.
One word of caution should be added. It is important that local churches and ministries follow “best practices” to correctly identifying those who meet the IRS regulations as to qualification for the clergy housing allowance tax benefit. The Evangelical Council for Financial Accountability provides a helpful resource in reviewing these important matters in the annual Minister’s Tax and Financial Guide, available for download at the tax guides link on the FCMM website.
The housing allowance exclusion applies only to the original participant and not to distributions made to a surviving spouse.
Another question that we often encounter is, “What is the future of the clergy housing allowance tax benefit?” While there have been a number of legal challenges raised about the matter, thus far the tax benefit has weathered each effort to undo it. It’s possible that the clergy housing tax benefit may be removed in the future. But in the meantime, it is both appropriate and wise to take advantage of the tax benefit presently available.
