How Does the Minister’s Housing Allowance Impact Your Retirement?

How does Housing Allowance Impact Your Retirement?

  1. During your active ministry years, you pay significantly less SECA (The Self Employment Contribution Act) tax. Make sure you save the difference and set it aside in your retirement plan.

  2. During your retirement years, you can take distributions equal to your housing allowance from your 403(b)(9) retirement plan without paying taxes. Functionally, this is an increase in compensation equal to your tax bracket—maybe as much as 25% at that point in time.

All voluntary contributions you make to your 403(b)(9) retirement plan reduce your SECA tax as well as your state and federal income tax.

What Are The Special Requirements for Housing Allowance After Retirement?

For Housing Allowance purposes, the IRS does not differentiate between an active and retired pastor. This allows retired ministers to request that some or all of their distributions from their retirement account be designated as housing allowance.

To take a distribution with special housing allowance tax treatment, you must be at least age 59 ½ and receive a Housing Allowance Authorization Letter from your church or governing organization.

Housing Allowance Distributions

Retired ministers are able to allocate all or a portion of their distributions as a housing allowance, which will result in lower-taxed or tax-free distributions. You can also request one distribution and have a portion of that distribution be treated as housing allowance and another portion as a regular distribution. You will receive one check or one electronic payment (ACH) for the total amount of the distribution, less any elected tax withholding.

You may designate a percentage to be withheld from any taxable portion of your distribution, but you will be responsible for any estimated tax and any penalties incurred as a result of that decision.

Making Changes to Your Special Housing Allowance Tax Treatment

You are responsible for submitting a new Distribution Authorization Form—Special Housing Allowance Tax Treatment to Envoy. If you do not submit a new Distribution Authorization Form—Special Housing Allowance Tax Treatment to Envoy, your original Housing Allowance amount as elected on the form will continue from one tax year to the next for recurring distributions.

Your distributions will continue until you stop the distribution or until your account balance is depleted. If you wish to stop distributions, please contact Envoy.

Can You Take a Housing Allowance if You have Rolled Over to an IRA or 401(k)?

Most ministers don’t know this, but the answer is no. This is why it is important for ministers to keep their money in a 403(b)(9) and not roll over into an IRA or 401(k). Retired ministers may want to consolidate various investments into a single account. But if you roll over your 403(b) account into an IRA or 401(k), you will no longer be able to claim housing allowance on those funds. It’s important for retired pastors to keep their funds in a 403(b) account so that they can take tax-reduced or tax-free distributions. This special benefit can help your retirement savings go up to 25% further. Which is a big deal!

For more information on Housing Allowance, go to the Minister’s Housing Allowance Frequently Asked Questions.


To learn more about housing allowance, download our FREE Housing Allowance eBook.

Envoy Financial does not offer legal or tax advice and encourages that you consult with a lawyer and/or professional tax advisor for personalized tax advice.

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