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403(b) Non-ERISA Plan


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Guest taxesquire

yes - they can contribute out of their 1099 earnings. Make sur the plan document, if one exists, properly allows for this.

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Also, be careful to compute (but see an exception below) contributions only on that portion of the minister's earned income that's attributable to his or her ministry, rather than to work that's not for the church.

Usually, only an employee (but not an independent contractor) of a charitable organization may make (or have made for him or her) § 403(b) contributions. Many ministers are self-employed for most tax purposes. Special rules permit § 403(b) contributions for a minister, even if he or she is self-employed. A minister’s earned income from ministry (which might include services for the church or a church-related charity) is treated as his or her § 403(b) includible compensation. Instead of an exclusion, a self-employed minister may deduct his or her § 403(b) contributions.

A special $10,000 limit sometimes helps a church employee who has little or no "cash" compensation. After 2001, a § 403(b) contribution of a church employee (see below) meets the annual-additions limit if the contribution is no more than $10,000. The total contributions using this rule (including a pre-EGTRRA version of it) for all years (including pre-2002 years) can’t exceed $40,000.

Example:

How a church’s housing allowance affects the annual-additions limit

Frank is the pastor of Fellowship Church. The Church doesn’t provide Frank any salary or wages; rather, his only compensation is his obligation to live in the Church’s parsonage. If a parsonage allowance doesn’t count in § 415 compensation, Frank’s compensation is $0.00. If the usual annual-additions limit applied, Frank’s limit would be $0.00 [100% x $0.00 = $0.00]. Internal Revenue Code § 415©(7)(A) permits a contribution of up to $10,000 into Frank’s contract. But if Frank continues to have no compensation and contributions to his § 403(b) account are $10,000 each year, he may use this rule only for four years [$10,000 x 4 = $40,000].

This rule applies to an employee of a church, a convention or association of churches, or an organization that’s controlled by or associated with either a church or a convention or association of churches.

26 U.S.C. §§ 403(b)(1)(A)(iii), 404(a)(10), 414(e)(5), 415©(7)(A)-(E); 26 C.F.R. § 1.415©-1(d)(1)-(4) (not yet officially codified). See also Proposed Treasury Reg. § 1.403(b)-9(b)&©.

Following the spirit of this bulletin board, please understand that this general information isn't tax advice to anyone.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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