Why A Church Should Use a 403(b)

Why A Church Should Use a 403(b) October 20, 2010

First, What is a 403(b)?

A 403(b) is a retirement account similar to a 401(k) – the biggest difference is that non-profits generally use the 403(b) (hospitals, churches, schools, public foundations). The account name 403(b) is taken from the section “403(b)” in the Internal Revenue Code.

The 403(b) is similar to a 401(k) in many ways:

– Both allow employees to contribute pre-tax (ROTH if your plan allows) directly from your paycheck.

– Both have contribution limits: 2009+ is $16,500 base limit

If you are 50+ you can contribute an additional $5,000 each year.

(These limits are subject to your income: you cannot contribute more than you earn. Also, your employer might limit the percentage of your income that you can contribute to a 401(k), but this depends on their plan.)

-Both require you to meet a distributable event before you can access your funds which can include:

-Reaching age 59 ½

-Separation from employment




-Both plans may allow you to borrow from your account.

-Both plans have investment options depending on the vendor your company uses.

Why a Church Should Use a 403(b)

In many ways, your church operates like a business does. It has an income (tithe) and pays wages to employees and can provide all the benefits of an employer in the business world.

For those in the ministry, you probably would agree that the finances can sometimes be tight and benefits for the employees are slim beyond a modest paycheck. This is why the 403(b) is a great tool for churches! In most cases, the church can offer a 403(b) retirement benefit to their employees for free! How many times can an employer offer something to their employees that don’t cost any money? Free benefits are great – so churches definitely need to allow employees to open their own 403(b) account and save for retirement.

Secondly, what better way is there to practice what you preach about good stewardship than providing a tool for your employees to save for their future? By providing employees with 403(b) accounts, they can pay themselves before Uncle Sam and exercise the principles of saving that resonate throughout the Bible.

Thirdly, ministers can save for retirement and can withdraw the funds at retirement as a housing allowance. You might be familiar with the minister’s housing allowance – an IRS rule that provides ministers with a tax break to cover their housing expenses for the year. (If you’re not, I’ll cover that in another article) For ministers, they can actually contribute to their retirement account pre-tax and withdraw funds as housing (no-tax) up to their actual expenses or the fair rental value of their property, whichever is less.

So basically the three biggest reasons are:

1. It’s a free benefit for employees

2. It’s promotes good stewardship of money

3. Minister’s housing allowance at retirement

Where to start a 403(b) plan?

First, check with your church’s denominational headquarters to see if there is a 403(b) provider that specializes in your denomination. (Examples include: Guidestone for Southern Baptist or Benefits Board for Church of God)

If they do not provide you with a recommended 403(b) provider or if you are a non-denominational church, then seek out an institution that is familiar with operating a 403(b) church plan.

The plan administrator that sets up your 403(b) should provide the church with all the necessary documents and instructions for sending contributions. All it takes is a quick phone call or two and your church will be on its way to establishing a 403(b) retirement plan. What are you waiting for?

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