July 22, 2012

Church as Facilitator of Pastor Contributions to a Traditional IRA Account

Question:

Is there any reason a church could not make deposits to an IRA account for its pastor? It is understood that any deposits would have to be reported as income on Form W-2, but other than that, is there any problem? Also, how much of a monthly contribution would be necessary for a 403(b) to be worth the trouble to set up?
Answer:

Usually it is the responsibility of the minister to make contributions to his IRA himself and take a deduction when he files his personal returns. However, there is no restriction to assist in payroll deductions for any purpose as long as they are handled correctly on Form W-2 (as is suggested in the Question). Many ministers do not use traditional IRA plans since Internal Revenue Code section 403(b) and Roth IRA plans are available. Self-employment tax is not assessed on contributions to Church Plans (IRS Revenue Rulings 68-395 and 78-6) which it is believed to include 403(b) plans.
It is our experience that most investment firms that sponsor 403(b) plans require minimum monthly contributions. Fees to establish and to contribute to these plans must be weighed against the tax benefits.

The members of my Federal Taxation I class at Maranatha Baptist Bible College in Watertown, Wisconsin have taken on the challenge of study and research to answer posted questions. Leslie Harrison of Michigan gets credit for this one.

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