Can I as a retired pastor still apply a housing allowance to my tax return if I switched my 403B (my church's retirement plan) to an IRA after I retired May 31, 2003? I made the switch in October 2003. All of my contributions were made prior to my retirement. I took one distribution in June 2006. I have been taking a monthly distribution since May 2008. I have been applying the housing allowance since I retired, including my 2008 returns, but have been questioned by a CPA as to whether I would still qualify for the allowance. I am very concerned as to what is the right thing to do at this point.
Payments from a minister's 403(b) plan can be designated as housing allowance provided certain qualifications are met. IRC Section 107 requires that all payments of housing allowance be designated in advance and in writing by the organization making the payments. The organization must be a qualifying organization and it must designate the payments. Commercial investment funds do not have the ability to designate payments as housing allowance, and a minister cannot make the designation on his own return. Therefore, the only retirement payments that are eligible to be designated as housing allowance are those paid through a church or denominational retirement program. These are considered as payments made from the church, and the church has the ability to designate the payments as housing allowance. Once a minister transfers funds to a commercial investment firm, either into a 403(b) account or an IRA account, it is not possible to designate the payments as housing allowance under IRC Section 107.