A church would like to provide housing for its minister after he retires. His retirement is still a few years off. What can the church do now to provide for its pastor after his retirement? The church would rather not use the parsonage to provide for this retirement housing.
403(b) Retirement Distribution as Housing Allowance
As seen in the above link, the church can designate all or a part of the distributions as housing allowance. The part not classified as housing allowance is income.
(2) After the minister retires (and is no longer providing services to the church), the church can continue to provide him with housing. The Minister Audit Techniques Guide says "The retired minister may exclude from his/her net earnings from self-employment (SE) the rental value of the parsonage or the parsonage allowance received after retirement. The entire amount of parsonage allowance received is excludable from net earnings from self employment, even if a portion of it is not excludable for income tax purposes. In addition, the retired minister may exclude from net earnings from self-employment any retirement benefits received from a church plan. Rev. Rul. 58-359, 1958-2 C.B. 422."
Thus the church could elect to have the pastor stay in the parsonage after his retirement. The housing would be non-taxable to the minister in this arrangement.