What Church Treasurers Should Know About Rabbi Trusts
These trusts can be advantageous for pastors approaching retirement.

A "rabbi trust" is a retirement plan used by some churches to set aside funds for an employee's retirement. Rabbi trusts typically are created for a senior pastor who is approaching retirement. One of the advantages of a rabbi trust is that the annual contribution limits that apply to tax-sheltered annuities and qualified pension plans do not apply. This allows churches to set aside more substantial amounts for a minister's retirement.

The IRS has ruled that amounts set aside by employers in a rabbi trust on behalf of an employee are not currently taxable to the employee so long as certain requirements are met. One requirement is that the trust is subject to a "substantial risk of forfeiture." A "substantial risk of forfeiture" includes making the funds set aside in a rabbi trust subject to the employer's general creditors. A federal appeals court addressed this aspect of rabbi trusts in a recent case.

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Posted: June 1, 2004
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