403(b) Brochure

Investment Advisory Brochure

Financial Planning

Pension FAQ

Payments by an employer to a qualified pension plan or tax-sheltered annuities (403(b) plans) are exempt from income and Social Security taxes for ministers and rabbis employed as such. This saves over 30% over taxable investment accounts and over 15% over IRA's. The advantages of these accounts are unique to ordained clergy as detailed below. Churches may use denominational pension plans and independent 403(b) plans for their ordained and lay employees. Independent plans offer the tax advantages of denominational plans while also offering greater choice, flexibility and estate options with the possibility of greater growth. Denominational plans offer greater assurance of a lifetime income stream to both employee and their spouse. We recommend funding denominational plans first. Features of 403(b) retirement plans include the following items:

1. All funds are vested from the first dollar. The account belongs to the employee after they leave employment.
2. All funds must be paid by the employer. This is generally called a "salary reduction plan." We encourage churches to adopt a fixed percent of salary or a dollar amount it will contribute for all clergy and other qualified employees.
3. Funds are invested in consultation with each employee according to their needs and preferences.
4. Funds are free of social security and income taxes going in for clergy. For others, contributions reduce taxable income.
5. For clergy plans, withdrawals in retirement are deemed as housing allowance to the extent used as such by a minister. This means funds are exempt from income and social security tax going in and coming out as long as a minister uses the funds for housing allowance--a substantial tax benefit!
6. Withdrawals before age 59 ½ are subject to a 10% penalty as well as ordinary income taxes, like an IRA.
7. Payments must begin by age 70 ½ unless still employed. Minimum payments are based on life expectancy.
8. We recommend allowing all employees to participate in the plan. It is also wise to consider an "employer match" provision.
9. Each employee should name primary and secondary beneficiaries.
10. The total net payout after taxes can be from 15-60% higher than the same investment through an IRA!