Retirement & IRA Rules for Ministers

Retirement & IRA Rules for Ministers — 2026 Filing Season Guide (2025 Income Year)

Ministers face unique retirement tax rules — from church 403(b)(9) plans and parsonage allowances after retirement to personal IRAs governed by the latest SECURE 2.0 Act and OBBBA (One Big Beautiful Bill Act).
This post explains how clergy can structure their 2025 income for a smooth 2026 filing, including contribution limits, RMD rules, and housing exclusions in retirement.

1️⃣ Church Retirement Plans (403(b) & 403(b)(9))

Churches and denominational boards may sponsor 403(b) tax-sheltered annuity plans or special 403(b)(9) church plans that operate like 401(k)s but follow nonprofit rules.
Ministers can exclude allowable contributions from taxable income when properly designated.

📆 Annual elective deferral limit (2025): $23,500
➕ Catch-up contributions: $7,500 (age 50+) or $11,250 (ages 60–63)
💰 Combined employer + employee deferrals cannot exceed 100 % of compensation

EA Tax Tip 💬
Ministers working for churches that do not withhold FICA may still join a 403(b)(9) plan and deduct personal contributions on Schedule 1 (Form 1040), line 16 or 24g.

2️⃣ Parsonage Allowance for Retired Ministers

Even in retirement, a portion of a minister’s pension may be designated as a housing allowance for past service to the church (IRC §107). Trustees may formally designate this portion each year (Rev. Rul. 63-156, 75-22).

Exclude the least of (1) amount used for housing, (2) amount designated, or (3) fair rental value + utilities + furnishings.
Retired ministers may also exclude these amounts from self-employment income (Rev. Rul. 58-359).

Example 💡
Rev. John receives $30,000 in annual pension, of which $12,000 is designated as housing allowance.
He spends $10,800 on mortgage and utilities and his home’s fair rental value is $11,500.
He may exclude $10,800 —the smallest amount — from both income and SE tax.

3️⃣ IRA Options for Ministers — Traditional & Roth

Ministers can supplement church plans with IRAs subject to the 2025 SECURE 2.0 limits. Roth IRAs grow tax-free while Traditional IRAs offer upfront deductions if income allows.

Type	2025 Contribution Limit	Catch-Up (50+)	Tax Treatment
Traditional IRA	$7,000	$8,000	Deductible if MAGI within limits
Roth IRA	$7,000	$8,000	After-tax contribution; qualified distributions tax-free

MAGI phase-outs (2025): Single $165 k – $185 k · Joint $246 k – $266 k.
Ministers can contribute to both plans within limits, but deductibility drops if covered by a church plan.

EA Tax Tip 💬
Even if you contribute to a 403(b) through the church, you can still open an IRA for spousal or additional savings — just watch the combined limit.

4️⃣ Distributions & Required Minimum Distributions (RMD)

Under SECURE 2.0, the RMD age rises to 73. Church plan participants may delay RMDs until retirement if still employed by the sponsoring organization.
Roth IRAs have no lifetime RMD requirement.

🚫 10 % early-distribution penalty applies before age 59 ½ unless exceptions (disability, death, education, birth/adoption ≤ $5 k).
✅ Roth 403(b) distributions are tax-free after 5 years and age 59 ½.

5️⃣ Rollover & Coordination Rules

Ministers may roll over funds between 403(b)s and IRAs via trustee-to-trustee transfer with no withholding.
Only one 60-day indirect rollover per 12 months is allowed. Any MAGI can convert a Traditional IRA to a Roth IRA.

EA Tax Tip 💬
Keep board minutes or official letters that designate housing allowances for retired ministers each year — it’s your best IRS defense.

💬 Frequently Asked Questions

Q1. Can a retired minister still claim the housing allowance exclusion?
✅ Yes — if the church or trustees designate a portion of each pension payment as housing allowance for past service.

Q2. Is RMD required for Roth 403(b)?
✅ Yes while employed, but none after rolling into a Roth IRA.

Q3. Are church plan benefits subject to Social Security tax after retirement?
✅ No. Under Rev. Rul. 58-359, retirement benefits and housing allowances after retirement are excluded from SE income.

Q4. Can a minister contribute to both Roth and Traditional IRAs?
✅ Yes — but combined contributions cannot exceed $7,000 ($8,000 if age 50 or older).

Reference Links

📗 Church & Ministry Tax Series (2025)

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