Many pastors and church staff are not affiliated with a denomination offering a pension plan. This guide explores three practical retirement plan options pastors can use to build financial security.
- IRAs are ideal for pastors who can contribute up to $7,000 annually and need a simple, tax-advantaged plan.
- Tax-sheltered annuities (403(b) plans) allow for higher contributions but may require professional setup.
- Rabbi trusts are suitable for clergy seeking additional retirement savings beyond IRA or 403(b) limits.</li>
IRA Contribution Limits for 2025:
Contribution Limit: The maximum annual contribution limit for IRAs in 2025 remains at $7,000. Individuals aged 50 and older can make an additional catch-up contribution of $1,000, bringing their total limit to $8,000. Internal Revenue Service
Deductibility of IRA Contributions:
Not Covered by Employer’s Retirement Plan: If you are not covered by an employer’s retirement plan, your traditional IRA contributions are fully deductible regardless of your income. However, if your spouse is covered by a retirement plan at work, the deduction may be phased out based on your modified adjusted gross income (MAGI). Internal Revenue Service
Covered by Employer’s Retirement Plan: If you are covered by an employer’s retirement plan, the deductibility of your traditional IRA contributions depends on your MAGI and filing status.
For 2025, the phase-out ranges are as follows:
- Single or Head of Household: The deduction is phased out for MAGI between $79,000 and $89,000. Above $89,000, the deduction is not allowed.
Married Filing Jointly:
- IRA Contributor Covered by a Plan: The deduction is phased out for MAGI between $126,000 and $146,000. Above $146,000, the deduction is not allowed.
- IRA Contributor Not Covered by a Plan, but Spouse Is: The deduction is phased out for MAGI between $236,000 and $246,000. Above $246,000, the deduction is not allowed.
- Married Filing Separately: The deduction is phased out for MAGI between $0 and $10,000. Above $10,000, the deduction is not allowed.
These updated limits reflect the IRS’s adjustments for inflation and changes in retirement plan contribution rules. It’s essential to consult the latest IRS publications or a tax professional for personalized advice.
Pastors without access to denominational pension plans still have several retirement planning options. Below, we explore IRAs, tax-sheltered annuities, and rabbi trusts to help you find the best fit for your financial goals.
Three Retirement Plan Options for Pastors
1. Individual Retirement Accounts (IRAs)
IRAs offer a straightforward retirement solution for pastors and church staff who lack employer-sponsored plans. Key details include:
- Annual contribution limit: $7,000 or 100% of compensation (whichever is less).
- Tax-deductible contributions: Available for employees not participating in employer-sponsored plans, subject to income limits.
- Tax-deferred growth: Earnings on contributions grow tax-deferred, regardless of deduction eligibility.
Most IRAs can be easily set up through banks or mutual fund companies, making them a practical choice for pastors with limited retirement contributions.
2. Tax-Sheltered Annuities (403(b) Plans)
Churches without denominational pension plans should consider establishing a 403(b) plan for pastors and lay workers. These plans offer significant benefits, including:
- Higher contribution limits compared to IRAs.
- Tax-deferred growth on investments.
While the setup and compliance requirements can be complex, mutual fund companies often provide assistance to help churches implement these plans.
3. Rabbi Trusts
Rabbi trusts are another option for pastors and church staff seeking additional retirement savings. Highlights include:
- Designed for those contributing beyond IRA or 403(b) limits.
- Offers tax-sheltered retirement income.
- Churches can adopt a model rabbi trust provided by the IRS.
Learn more about retirement planning for clergy: IRS Publication 517. For detailed information on 403(b) plans, visit the Department of Labor.
FAQs About Retirement Plans for Pastors
What are the best retirement plans for pastors?
IRAs, tax-sheltered annuities (403(b) plans), and rabbi trusts are excellent options for pastors without denominational pensions.
Can a church sponsor a retirement plan for pastors?
Yes, churches can establish 403(b) plans or contribute to rabbi trusts for their pastors and staff.
What are the contribution limits for IRAs and 403(b) plans?
IRAs allow annual contributions of up to $2,000 (or 100% of compensation, whichever is less), while 403(b) plans have higher limits based on salary and other factors.
Are rabbi trusts a common retirement option?
Rabbi trusts are less common but are valuable for pastors seeking additional tax-advantaged retirement savings beyond IRA or 403(b) contributions.
With careful planning, pastors can create a solid retirement strategy, even without denominational pensions. By exploring these options, you can secure financial stability and peace of mind for the future.