Editor’s Note: The question of whether mutual funds and other private investment services can administer a 403(b) plan for ministers and designate housing allowances is addressed in the Church & Clergy Tax Guide. For more guidance with housing allowances and retirement planning, check out chapters 6 and 10 in particular.
Can a retired minister receive a housing allowance?
Treas. Reg. 1.107-1(b) says this: “The term rental allowance means an amount paid to a minister to rent or provide a home, if such amount is designated as a rental or a housing allowance pursuant to official action taken in advance of such payment by the employing church or other qualified organization.”
(Note: The tax code uses the term “rental allowance.” I use the term “housing allowance” to apply to both rental and ownership. But “rental allowance,” when used by the Internal Revenue Service, is not talking about only rent. It’s talking about ownership, as well.)
Now here’s the key in that regulation: “by the employing church or other qualified organization.” The issue here is this: Can a denominational pension board declare a housing allowance based on retirement distributions under a 403(b) plan?
For denominational pension plans, the IRS has acknowledged in Revenue Ruling 75-22 that the denominational pension plans can designate a housing allowance for retired ministers because they are—as noted in the above regulation—“other qualified organizations.” A housing allowance has to be declared by the employing church of a minister or other qualified organization. The denominational pension board is not an employing church. But it is, as the IRS concluded in that ruling back in 1975, an “other qualified organization.”