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403(b) Distribution Treated as Housing Allowance


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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.

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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"?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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