The Ministerial Housing Allowance in Retirement FAQs

A unique feature of a 403(b)(9) Church Plan is that ordained ministers may allocate a portion of their retirement plan withdrawals to cover housing expenses on a tax-exempt basis. Upon reaching the age of 59½, ministers (employed or retired) can make withdrawals from their retirement account without being assessed a 10 percent early withdrawal penalty. 

These withdrawals are eligible for the housing expense exemption, following the limits set forth by the Internal Revenue Service and explained further below.

What is the ministerial housing allowance tax exemption and how does it reduce a minister’s federal income tax?

After turning 59½, an ordained minister may begin making penalty-free withdrawals from a 403(b)(9) retirement account. As an ordained minister, monies drawn from the account and used for allowable housing related expenses can be excluded from income in that year, and will therefore not be subject to federal income taxes. 

Who qualifies?

The individual must be an ordained minister, according to IRS rules.

Is this the same as a minister receiving a housing allowance while actively employed?

No, one is a form of compensation from an employer and the other is a tax-advantageous distribution of retirement distributions. A minister cannot “double-dip” by receiving a housing allowance and also claiming those same housing expenses as tax-exempt when withdrawing funds from his retirement account. 

How is a minister eligible for housing allowance if he is no longer an active minister?

Upon retirement, the IRS allows credentialed ministers of all established denominations to declare a housing allowance on distributions from their 403(b)(9) retirement accounts. The actual amount claimable for housing expenses in any given year is subject to restriction of the IRS Code. That Code extends this provision to both active and retired ministers provided that the funds being withdrawn were contributed while the minister was actively employed as a minister.

What are the benefits of a 403(b)(9) plan?

A 403(b)(9) is a defined contribution plan specifically designated for the unique needs of religious organizations. The (9) in 403(B)(9) designates it as a church plan that includes the ministerial housing allowance provision. In addition, many denominational retirement plans allow self-employed ministers working in fields such as church planting or other ministries to participate in the denominational plan. If a minister rolls his money out of a 403(b)(9) to an IRA or any other type of retirement account, he will permanently forfeit the housing expense tax exemption at the time those funds are placed in an account that is not a 403(b)(9).

For more information or if you have specific questions not addressed here, speak with your 403(b)(9) administrator. If your church is considering starting a retirement benefit, Auxilio recommends using an administrator that can provide a 403(b)(9). 

If you are an Auxilio client partner, talk with your Partner Strategist for a recommended provider. If you are not yet an Auxilio client partner, contact us to learn how we can serve your church or faith-based nonprofit and reduce your administrative burden to free you up for ministry.