403(b)(9) Church Retirement Plans: Housing Allowance and Limits

A 403(b)(9) church retirement plan is a defined-contribution plan built specifically for churches, denominational pension boards, and church-affiliated organizations. It lets ministers defer up to $24,500 in 2026, invests in a wider range of assets than a standard 403(b) custodial account, and — most importantly for clergy — allows retired ministers to receive part of each distribution tax-free as a housing allowance under IRC Section 107. Because it is a church plan, it is generally exempt from ERISA.

What Sets a 403(b)(9) Apart

Under Treasury regulations, a 403(b)(9) retirement income account is a defined-contribution program established or maintained by a church-related organization. The plan must keep separate accounting for each participant’s interest, tie investment performance to the underlying assets, and use the money exclusively for participants and their beneficiaries.¹

The practical contrast with a 403(b)(7) custodial account is what matters. Custodial accounts are limited to mutual funds. A 403(b)(9) can hold a broader range of assets, including collective investment funds run by the denomination. Church pension boards use this flexibility to pool resources, screen investments against theological or ethical guidelines, and often keep fees lower than commercial retail plans. Plan assets can even be commingled with funds devoted exclusively to church purposes, such as a pool used for unfunded pension payments to former employees.¹

Participants generally choose from a menu the church board or an appointed trustee assembles. That trustee selects and monitors the investment vehicles, which typically include diversified stock funds, bond funds, and real estate investment trusts.

Who Can Participate

Eligibility depends on the relationship between the individual and the sponsoring organization. A plan qualifying under IRC Section 414(e) must be established and maintained by a church, a convention or association of churches, or an organization controlled by or associated with a church.² That last category covers religiously affiliated schools, hospitals, and missionary agencies that share a common bond with the parent denomination.

Ministers of the gospel — those ordained, commissioned, or licensed by a religious body who perform religious functions in their day-to-day work — are the core participants. Non-minister employees of the church organization can participate too, as long as they perform services for the eligible employer.

Chaplains at Secular Employers

A 403(b)(9) plan must be maintained by a church-related organization, so a chaplain employed by a secular hospital cannot participate in that hospital’s plan. The chaplain’s denomination can separately maintain a 403(b)(9) covering that chaplain, which is how many denominational pension boards handle this. The IRS separately allows chaplains to participate in a 403(b) arrangement if they are employed by non-501(c)(3) organizations and function as ministers in their professional responsibilities.³

2026 Contribution Limits

Contribution rules track the standard 403(b) framework, with one unusual catch-up available to long-tenured church employees.

Standard and Age-Based Limits

The 2026 elective deferral limit is $24,500. Total annual additions, combining employer and employee contributions, are capped at the lesser of $72,000 or 100% of includible compensation.⁴⁵

Participants aged 50 through 59, or 64 and older, can add $8,000 in catch-up contributions, bringing their ceiling to $32,500. Under SECURE 2.0, participants who are 60, 61, 62, or 63 get a higher catch-up of $11,250, for a ceiling of $35,750.⁴

The 15-Year Church Service Catch-Up

Ministers and other employees with at least 15 years of service at the same qualifying church organization can access an additional 403(b) catch-up that sits on top of the standard deferral. It allows up to $3,000 in extra elective deferrals a year, capped at $15,000 over the participant’s lifetime.⁶

The amount available each year is the smallest of three figures: $3,000; $15,000 minus any 15-year catch-up already used; or $5,000 times years of service, minus all prior elective deferrals to the organization’s plans. That third calculation is where things get tight. A minister who has been deferring the maximum for years may find the formula produces zero, even with lifetime cap left on the table. Running it requires salary records and deferral histories across all church-related employment with the same employer. When both the 15-year and age-based catch-ups apply, the 15-year catch-up is used first.⁶

The Housing Allowance in Retirement

This is the single biggest tax advantage the plan offers. Under IRC Section 107, a minister of the gospel can exclude from gross income a rental allowance paid as part of compensation, to the extent it is used to provide a home and does not exceed the fair rental value of the home including furnishings and utilities.⁷ Revenue Ruling 75-22 extended this treatment to retirement distributions from church plans. A retired minister drawing from a 403(b)(9) can designate part of each distribution as a tax-free housing allowance.

The excludable amount is the lowest of three figures:

The amount the church or denominational pension board designated in advance
Actual housing expenses, including mortgage payments, property taxes, insurance, repairs, utilities, and furnishings
The fair rental value of the home, furnished, plus utilities⁸

The designation must happen before the distribution is paid. Most denominational pension boards handle this through a standing resolution or an annual board action recorded in meeting minutes. A designation made after the money is already out is too late, and the exclusion is lost for that amount.

Documenting the Exclusion Each Year

Keeping the benefit defensible takes annual work. Review comparable rental properties in your area each year to establish fair rental value for a similarly furnished home. Keep organized records of every housing-related receipt, from the mortgage statement to the plumber’s invoice. The IRS can ask for proof that actual expenses matched or exceeded the designated amount.

Any amount designated as housing allowance that exceeds actual housing expenses must be reported as taxable income on the federal return. The excess doesn’t disappear into a gray area; it gets picked up as income.

Surviving Spouses

The Section 107 exclusion is personal to the minister. When a minister dies, a surviving spouse who receives continued distributions from the 403(b)(9) generally cannot claim the housing allowance, because the spouse is not a minister of the gospel. The full distribution becomes taxable income to the survivor, and families are often caught off guard by this.

Rollovers and the Housing Allowance Trap

Pre-tax balances in a 403(b)(9) can be rolled to a traditional IRA, a Roth IRA (with the rolled amount taxed that year), another 403(b), a 401(k), a governmental 457(b), or a SEP-IRA.⁹ Transfers between denominational 403(b)(9) plans are also permitted, which matters for ministers who move between churches within the same denomination or switch to a different denomination’s plan. The receiving plan must keep separate accounting for the transferred amounts.

The critical planning point: rolling 403(b)(9) money into an IRA permanently eliminates housing allowance eligibility on those dollars. The Section 107 exclusion applies only to distributions from a church plan, not an IRA. A minister who expects to spend a significant share of retirement income on housing will often do better keeping funds in the church plan, even if an IRA offers a wider investment menu or lower fees. For dollars the minister does not expect to use for housing, a partial rollover to an IRA can make sense.

Required Minimum Distributions

RMDs from a 403(b)(9) start at age 73.¹⁰ The first is due by April 1 of the year after the participant reaches 73 or retires, whichever is later, as long as the plan allows the still-working exception.¹¹

For ministers still serving a congregation into their 70s, the still-working exception delays mandatory distributions and the tax hit that comes with them. The plan document may require distributions at 73 regardless, though, so check the plan terms before assuming the delay applies. A minister who defers the first RMD to April 1 of the following year will owe two RMDs in that same calendar year, which can push income into a higher bracket.

Loans and Hardship Withdrawals

If the plan document allows it, participants can borrow from the account. Federal law caps the loan at the lesser of 50% of the vested balance or $50,000, with a floor allowing borrowing up to $10,000 even if that exceeds 50% of the balance.¹² Repayment runs through substantially level payments at least quarterly over five years, or longer if the loan buys a principal residence. Outstanding loans from other employer plans in the prior 12 months reduce the $50,000 ceiling.

Hardship withdrawals are separate. A plan can allow them only when the participant has an immediate and heavy financial need, and only in the amount needed to satisfy it.¹³ Not every plan offers them, and the plan document controls whether they are available and which expenses qualify. A distribution before age 59½ that doesn’t meet an exception faces a 10% early withdrawal penalty on top of regular income tax.¹⁴

ERISA Exemption and What It Means for You

Most employer retirement plans fall under ERISA, which imposes fiduciary duties, funding requirements, reporting obligations, and PBGC insurance premiums. Church plans that have not elected into ERISA coverage under IRC Section 410(d) are exempt from all of this.² A non-electing church plan does not file the annual Form 5500. It is not subject to ERISA’s minimum participation, vesting, or funding standards. Participants cannot sue plan fiduciaries under ERISA.

The trade-off falls on participants. Without ERISA’s fiduciary framework, you rely on the sponsor’s good faith and the denomination’s internal governance. Non-electing church plans remain subject to pre-ERISA prohibited transaction rules under IRC Section 503, which bar lending plan assets without adequate security, paying excessive compensation, or selling plan property below fair value. A plan that violates those rules can lose tax-exempt status, but the enforcement teeth are weaker than ERISA fiduciary liability. If a sponsor elects into ERISA under Section 410(d), the election is irrevocable.

Reporting Distributions on Your Tax Return

Distributions are reported on Form 1099-R. The plan administrator puts the total in Box 1. Box 2a may show the same amount or may be left blank if the payer has not subtracted the housing allowance.¹⁵ You are responsible for calculating the taxable portion after applying the housing allowance.

The total goes on Line 5a of the federal return and the taxable portion on Line 5b. If you have a valid housing allowance designation, subtract the excludable amount before entering Line 5b. Many tax preparers attach a brief statement explaining the calculation and citing Section 107.

Self-Employment Tax

Active ministers owe SECA on their housing allowance unless they hold an approved exemption on Form 4361. Retired ministers get a break: retirement distributions from a church plan, including any portion excluded as a housing allowance, are not subject to SECA. One exception matters. If a retired minister returns to work for a different church and receives a housing allowance from that new employer, the new compensation is subject to SECA even though the retirement distributions are not. The question is whether the money comes from current services or from a prior accumulation in a church plan.¹⁶

1
eCFR. 26 CFR 1.403(b)-9 – Special Rules for Church Plans
2
Internal Revenue Service. Issue Snapshot – Qualification Requirements for Non-Electing Church Plans Under IRC Section 401(a)
3
Internal Revenue Service. Retirement Plans FAQs Regarding 403(b) Tax-Sheltered Annuity Plans
4
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
5
Internal Revenue Service. Retirement Topics – 403(b) Contribution Limits
6
Internal Revenue Service. 403(b) Plans – Catch-Up Contributions
7
Office of the Law Revision Counsel. 26 USC 107 – Rental Value of Parsonages
8
Internal Revenue Service. Ministers’ Compensation and Housing Allowance
9
Internal Revenue Service. Rollover Chart
10
Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
11
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
12
Internal Revenue Service. 403(b) Plan Fix-It Guide – Loan Amounts and Repayments Under IRC Section 72(p)
13
Internal Revenue Service. Do’s and Don’ts of Hardship Distributions
14
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
15
Internal Revenue Service. Instructions for Forms 1099-R and 5498
16
Social Security Administration. 20 CFR 404.1091 – Figuring Net Earnings for Ministers and Members of Religious Orders