Fostering Faith in the Future With a Church Retirement Plan: What You Need to Know

Fostering Faith in the Future With a Church Retirement Plan: What You Need to Know November 20, 2023

As the hands and feet of God, the mission and ministry of a church are important. Equally important is honoring and caring for leaders and pastors who dedicate their lives to serving. 

If you are a pastor or board member, it’s a good idea to consider how to honor and take care of pastors as they serve and when they retire. 

Choosing a Church Retirement Plan

Most organizations or churches pick one of two retirement plans. It’s either the more familiar 401(k) or the 403(b). When seeking advice from a financial advisor, it’s essential to know what plan suits your church best. Although the 401(k) may seem the best option, the 403(b) offers more benefits for your ministry and church employees or leaders. 

The primary difference between these plans is that the 401(k) is used mainly by “for-profit” organizations and falls under the Employee Retirement Income Security Act of 1974 (ERISA) regulations. This law has specific standards and rules to protect employees or participants in cases where organizations establish retirement and health plans.

These standards include:

  • Providing participants with information like the plan features.
  • Having minimum standards for participation in the plan, vesting or how much each employee will own in the plan and when they can access the money and information about how much money accumulates over time.
  • Setting a process for appeals and grievances.
  • Protecting employees from terminated plans so they still receive benefits. 

Essentially, the ERISA regulations protect individuals from circumstances outside of their control that might affect their retirement. Although the standards differ for the 403(b), transparency is essential in ministry.

When you add people to the church retirement plan, explaining how it works and what benefits each member will get is essential. It will help people to plan finances wisely and budget accordingly. 

Organizing Retirement Funds for Individuals

It’s often recommended to start saving for retirement in your early 20s, if not earlier. This means most ordained ministers must contribute to the retirement fund as early as possible. The church will also need to contribute to the fund. 

How do you play a part in ensuring that a pastor will have enough when they retire? An excellent place to start is the end goal. Consider their age, family and current life stage. When they retire, what would be the ideal amount to have saved based on their lifestyle?  

Your pastor might have a large family with children of different ages. Theoretically, when he turns 65, younger children might just be starting college. His retirement fund will look different from a pastor with a smaller family and children who have started their own lives outside of the family home. 

Consider how you can ensure he is well taken care of after his service to the church. You can use retirement calculators and seek professional financial advice to determine the best course of action. 

The Benefits of the 403(b) Church Retirement Plan

A 403(b) makes it easier for churches to administer and organize the plan so you can focus on ministry and pastoring the church family. This means the church is free from periodic reviews and testing and can save the money you would have paid for audits, form preparations and tests. Learn more about additional benefits.

Tax Deductible and Tax-Free

The money comes out of your salary and goes straight into the retirement plan untaxed. This reduces income tax. For example, if the last $12,000 of your total income is in the 22% tax bracket, when you place $12,000 in the 403(b) plan, you will save $2,640 in tax.

The only tax you will pay is when you start making withdrawals. It likely won’t be much, as most people fall into lower tax brackets when they retire. 

Church Contributions Can Continue 5 Years After Service

This rule only applies to 403(b) accounts. The church can continue to make contributions on behalf of a former employee for up to five years after they have resigned or stopped serving. 


You can choose when and how to include participants in the retirement plan. For example, you can set five years as the minimum employment or service required before a leader or employee can participate in the 403(b). 

Allowance for Housing

This allows an ordained or commissioned minister to take a non-taxable housing allowance from the 403(b). In general, ministerial housing allowances are deductible from gross income because the IRS considers a pastor or minister’s home an office since they prepare sermons, host meetings or counseling and do most planning and praying there. 

The church can also make contributions on behalf of a pastor who takes no income as a result of needing an excludable housing allowance. 

Plan for Retirement Proactively

In 1 Timothy 5:17-18, Paul says, “Let the elders that rule well be counted worthy of double honor, especially those who labor in the word and in teaching. For the scripture saith, Thou shalt not muzzle the ox when he treadeth out the corn. And, The laborer is worthy of his hire.” 

It’s important to honor and care for ministers and pastors as they labor for the gospel and serve the church. You can do so by being proactive about a church retirement plan that ensures they have what they need when it’s time to step down.

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