403(b) Distribution Treated as Housing Allowance

[DTH]

A church that sponsors a 403(b)(1) plan and wants to add language to the plan document that all distributions to ministers are designated as housing allowance unless the church says otherwise.

Treasury regulation 1.107-1(b) requires that the employing church or other qualifying organization must designate the amount of parsonage allowance in advance of payment.

The 403(b) LRMs don’t have housing/parsonage allowance language. Is it appropriate to designate plan distributions as housing/parsonage allowance in the plan document?

Thank you.

[david rigby]

My understanding is that any "housing allowance" must be reasonable for the purpose designated.  For example, it would (probably) not be reasonable to replace a $30,000 salary plus $10,000 housing allowance with a $40,000 housing allowance.

When you suggest that 403b distribution as a housing allowance, isn't that changing something defined as "deferred compensation" into "non-taxable compensation"?