Why Ministries Should Consider a 403(b) Plan
403(b) Plans for Christian Ministries
Today 403(b) retirement plans provide significant benefits and advantages for ministries.
A 403(b) plan is a retirement plan is typically established for employees of public schools, employees of certain 501(c)(3) tax-exempt organizations, and certain ministers. A 403(b) plan allows employees to contribute some of their salary to the plan. The employer may also contribute to the plan for employees.
Since Christian ministries often have unique needs, it's important to tailor the retirement plan to those needs. It's also crucial to be aware of, and benefit from, the tax code and the Department of Labor rules.
Some Benefits of a 403(b) Retirement Plan
Most plan sponsors are not aware of the specific 403(b)(9) church retirement plan rule that makes the minister's voluntary contributions pre-SECA tax in addition to state and federal income tax. Ministers can save 15% in SECA taxes by using a church retirement plan instead of other savings plans.
The Foreign Earned Income Exclusion IRS rule allows missionaries working abroad to qualify to exclude their earned wages from U.S. federal taxes. This amount changes annually with inflation ($107,600 for 2020). Use the IRS’s Interactive Tax Assistant tool to see if you are eligible for this exclusion.
A Roth 403(b) retirement plan allows missionaries abroad to contribute to a Roth 403(b) resulting in tax-free growth and distribution. A Roth 403(b) is an outstanding savings vehicle for your employees. Are you offering both a 403(b) and a Roth 403(b) plan? It may be a good idea to look into it.
403(b) Retirement Plans for Churches
If your ministry is a church, it would be beneficial to look into a 403(b)(9) church retirement plan. This is a retirement plan specifically designed for the unique needs of churches or those with 501(c)(3) church status. 403(b)(9) plans are different from 403(b) and 401(k) plans because they are not subject to ERISA requirements.
If you're not taking advantage of these benefits now, perhaps a change in providers is necessary.
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