Retirement Plans

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Should Churches use a SEP IRA?

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Of the three main options available to most churches for establishing retirement plans for their pastors - SIMPLE IRA, 403(b), and SEP IRA - my favorite option is the SEP IRA. The most obvious difference between a SEP and either a SIMPLE or a 403(b) is that employees are not allowed to make contributions to a SEP. Only the employer can contribute.

In my experience, this isn’t an issue for most pastors since most pastors probably don’t have a ton of money to contribute out of their own budgets towards retirement anyway; and even if they do, they can usually still do so through making contributions to their own personal Traditional or Roth IRA.

The biggest thing I like about the SEP IRA is that the church can choose to contribute up to 25% of the pastor’s salary towards his retirement. As with SIMPLE plans, please note that this only applies to the pastor’s actual salary, not their total income. If a pastor has a total income of $50,000, but designates $25,000 of that as being housing allowance, the church can only contribute up to $6,250 ($25,000 x 25% = $6,250).

This provides both the pastor and the church with a multitude of options regarding how to best care for the pastor and his family.

As for what I don’t like about SEPs . . . yeah, I can’t think of anything. They’re easy to setup and operate. They provide a way for the church to be as generous as it can afford to be to all employees. There really is no downside that I can see.

Obviously, a lot more could be said about the intricacies of and requirements surrounding SEPs. As I have said in the past, I am not an accountant, tax professional, or certified financial planner, and you should definitely seek counsel from one or more of these individuals before deciding on which plan is best for you and your church.

For a nice overview of SEP IRAs, click here.

What do you think? Leave a comment below, or follow me on Facebook and leave a comment there.

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THE PASTOR'S GUIDE TO WISE INVESTING

Pastors are so good at so many difficult things - preaching/teaching, counseling, discipling, caring - but can very often be completely clueless when it comes to handling their money wisely. This can be true of their day-to-day finances, but is often more true in regards to their retirement planning.

The Pastor's Guide to Wise Investing takes the, often, confusing world of investing and makes it simple and easy to understand by compiling and condensing the best advice from the best investors of our day into one simple, easy-to-read guide.

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Should Churches use a 403(b)?

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The non-profit equivalent of a 401(k) account is called a 403(b) account. If you have ever had a 401(k), then you know how it works. Unless your church is very large, I can almost guarantee that this will not be the best choice for you.

What I like about 403(b) accounts is that there is a lot more flexibility for increased contributions from both the pastor and the church. What I hate about 403(b) accounts is that they are MUCH more complicated to operate and administrate than either a SIMPLE IRA or a SEP IRA, and I would not recommend creating such a plan without the direct help of both an accountant and a tax professional. Personally, I think that most churches (particularly small and medium sized churches) have a better option.

A lot more could be said about the intricacies of and requirements surrounding 403(b)s. Since I am not an accountant, tax professional, or certified financial planner, you should definitely seek counsel from one or more of these individuals before deciding on which plan is best for you and your church.

For a nice overview of 403(b)s, click here.

What do you think? Leave a comment below, or follow me on Facebook and leave a comment there.

BUY YOUR COPY TODAY!

THE PASTOR'S GUIDE TO WISE INVESTING

Pastors are so good at so many difficult things - preaching/teaching, counseling, discipling, caring - but can very often be completely clueless when it comes to handling their money wisely. This can be true of their day-to-day finances, but is often more true in regards to their retirement planning.

The Pastor's Guide to Wise Investing takes the, often, confusing world of investing and makes it simple and easy to understand by compiling and condensing the best advice from the best investors of our day into one simple, easy-to-read guide.

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Should Churches use a SIMPLE IRA?

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As the name suggests, SIMPLE IRAs are extremely simple for churches to operate. SIMPLE plans can be setup as either matching or non-matching plans. If a church chooses to use the matching approach, they can match, dollar-for-dollar, each employee’s retirement contributions up to 3% of the pastor's total salary (ONLY their salary and NOT their housing allowance). They can do less than 3%, but no more. In this setup, employees can also contribute up to $12,500 towards their SIMPLE plan as of 2017.

If the church chooses to use the non-matching approach, they must contribute 2% of every employee’s salary towards their respective SIMPLE plans regardless of whether or not the employee makes any contribution.

What I like about SIMPLE plans is that they are, well, simple. They are extremely easy to set up and administrate. What I hate about SIMPLE plans is that the church can only contribute a very small amount towards the pastor’s retirement account.

Obviously, a lot more could be said about the intricacies of and requirements surrounding SIMPLE IRAs. I am not an accountant, tax professional, or certified financial planner, and you should definitely seek counsel from one or more of these individuals before deciding on which plan is best for you and your church.

However, while it is definitely better than nothing, my non-credentialed belief is that you can do a lot better than a SIMPLE IRA for your pastors.

For a nice overview of SIMPLE IRAs, click here.

What do you think? Leave a comment below, or follow me on Facebook and leave a comment there.

Coming Soon!

THE PASTOR'S GUIDE TO WISE INVESTING

Pastors are so good at so many difficult things - preaching/teaching, counseling, discipling, caring - but can very often be completely clueless when it comes to handling their money wisely. This can be true of their day-to-day finances, but is often more true in regards to their retirement planning.

The Pastor's Guide to Wise Investing takes the, often, confusing world of investing and makes it simple and easy to understand by compiling and condensing the best advice from the best investors of our day into one simple, easy-to-read guide.