Tax Information for the Clergy Advantage 403(b)
The Board of Directors of Church & Clergy Alliance shall designate annually that all distributions are eligible to be treated as housing allowance. Only amounts paid to a participant who is or was a licensed, ordained or commissioned minister are eligible for designation. The housing allowance designation shall apply to Ministers, former Ministers, and retired Ministers to the extent that their account balance represents contributions derived from their compensation from services performed in the service of their ministry and the investment earnings on those contributions. The housing allowance shall not apply to funds rolled out of the plan.
The amount that a minister may claim as housing in a given year is the lesser of:
•The actual housing expenses or
•The annual fair market rental value of the house, furnishings and utilities.
•The amount of housing allowance received.
Participants must have a Salary Deferral Agreement in place with the participating church in order to make Roth-style elective contributions to their 403(b). Such contributions are after tax. Distributions of Roth-style contributions and contribution earnings are withdrawn tax free. Distribution rules apply.
Distributions claimed as housing allowance are not taxable for ministers when properly set up. There is a 20% mandatory federal income tax on all retirement distributions not claimed as housing allowance.
Depending on the participant’s state of residence for tax purposes, some distributions may be required to have state income tax withheld.
All retirement distributions are reported by the vendor on a form 1099R.
Church & Clergy Alliance strongly recommends that all ministers coordinate their tax and financial planning with qualified clergy tax specialists such as Clergy Advantage, to fully use and understand their unique tax advantages.