June 26, 2009

Retirement Funds for Self-Employed Individuals

Question:

A foreign missionary is compensated by many churches and individuals whose contributions are managed and distributed to him by one church, which issues him a Form 1099-Misc at the close of each year. Can he set aside retirement funds in a Internal Revenue Code (IRC) section 403(b) retirement plan though he is being paid as in independent contractor (rather than as an employee)?

Answer:

IRC section 403(b) plans are funded from two sources--employer contributions and employee "elective deferrals" (amounts are withheld and then passed on to an investment firm that manages the plan). Since the missionary is not being treated as an employee, it seems that a self-employed plans offer the only alternatives (e.g. individual IRAs are the simplest form). IRS Publications 560 and 4547 provide additional information.

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