Roth IRAs and Roth-designated salary deferral contributions to 401(k) or 403(b) retirement plans have gained popularity, and for good reason. By paying tax now on the amount you contribute, you can later draw non-taxed distributions from the account which will have grown with non-taxed earnings. Your FCMM Retirement Plan offers you this Roth opportunity, too.
However, minister and missionary participants may want to consider the added housing allowance feature of a church plan, like FCMM, before contributing to a Roth account. Here’s why. When you make voluntary (“pre-tax”) salary deferral contributions to FCMM through your employing church while you are eligible for housing allowance, those contributions reduce your W-2 taxable income. Then they grow over time. And when you begin to take retirement distributions from those funds, FCMM designates 100% of the annual distributions as housing allowance – so the distributions are tax-free to the extent they are used for housing expense under IRS guidelines. That means, unlike Roth contributions, the clergy voluntary contributions are not taxed upon contribution or distribution.
The key: Only a church retirement plan can offer the housing allowance income exclusion. (A plan properly developed by a local church can do so, but the local church would have to track and designate funds for employees into retirement years.)
One caveat: The housing allowance benefit can only be exercised by the minister participant and does not continue with a surviving spouse.
More benefit: The money you voluntarily contribute through salary deferral is not subjected to paying SECA (Social Security self-employment rate = 15.3%) tax since it reduces your eligible income.