Just recently I was at a State Minister’s gathering, and again I was reminded of the widespread misunderstanding of the Minister’s Housing Allowance benefit.
In short, any portion of your compensation (within IRS guidelines) that is designated as Housing Allowance is exempt from federal income tax—and often from state income tax as well. It’s a powerful benefit that helps ministers steward their income wisely, both today and in the future. Even if retirement feels far off, understanding how Housing Allowance works in retirement can help you build toward a future filled with freedom and Kingdom impact. Because retirement plan contributions made during the exercise of ministry can be designated as housing allowance when distributed after retirement, there is even more reason to save as much as possible now in your 403(b) account to take fullest advantage of this down the road: you won’t pay federal income taxes on it now OR when you withdraw it as Housing Allowance in retirement!
For retirees, the IRS considers any income you “earned through services as a minister,” and saved in a 403(b) Church Retirement Plan (like Servant Solutions) as eligible for Housing Allowance distribution after you retire.
Again, to be clear, this is only possible if:
1. You are a retired, credentialed minister.
2. You saved monies earned through your ministerial income in a 403(b) Church Plan.
3. You withdraw your ministerial savings through a 403(b) Church Retirement Plan like Servant Solutions.
If you are a credentialed minister and have other retirement investments outside of your Servant Solutions account, you may be tempted (or even encouraged) by a well-meaning financial adviser to consolidate all your retirement funds into one place (their place) “for easier manageability.” While this might seem like a good idea at first glance, keep in mind that once you roll your retirement savings out of a 403(b) church plan (such as Servant Solutions), you cannot withdraw it as tax-free income in the future. If consolidation is your goal, keep in mind that you can roll over other investments (a pre-tax IRA, 403b, 401k, etc., or Roth 403b... just not a Roth IRA) into your Servant Solutions account. In that scenario, you can track everything on one statement, continue to have dozens of investment options as you do now, and withdraw your clergy-related savings as housing allowance in retirement!
For a deeper dive and to gain more understanding about Housing Allowance, be sure to visit our website: https://www.servantsolutions.org/the-ministers-housing-allowance. You will find helpful information, links, and worksheets to assist you in your annual determination and declaration of your housing allowance.
Rev. David Boots, Director of Member Relations, Western Region
Rev. David Boots serves as the Servant Solutions Director of Member Relations for the Western Region. He brings his experience and knowledge of 35 years of vocational church ministry, having served three large congregations of the Church of God full time as Executive Pastor, overseeing operations, administration and finance. He has also served those congregations at times as Worship Pastor.