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Practice Management

403(b) Participation for Self-Employed Ministers

Q. A pastor wants to start a 403(b)(7) plan for his church. He says that the church will be making monthly discretionary contributions for him as it does not pay him a salary.
 
He also does a lot of ministerial work for other churches, which give him Forms 1099 at the end of the year. He would like to contribute some of the money he earns from the other churches into a retirement account.  Would that be a 403(b)(7), or does it have to be a 403(b)(9)?

A. Part 1 – If the pastor does not receive a salary, on what will the church base the contribution? There are special rules for churches, where a contribution can be made regardless of a salary, but based on this question, it appears that the document does not have the special church plan rules. There are 403(b) plans that are not 403(b)(9) documents written for faith-based organizations, so it is possible to have a document that could be used. I would first check the plan document that you offer to see if it includes special contribution rules for churches – ($10,000 per year not to exceed lifetime limit of $40,000 – even if they have no compensation).

Part 2 – A self-employed minister who receives Forms 1099 is considered to be their own 501(c)(3) employer and could have contributions made into only a 403(b)(9) account. There have been proposals to change this section of the Internal Revenue Code, but none of them have been enacted, so for now we are stuck with a 403(b)(9).