Discussion:IRA distributions to retired ministers
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Discussion Forum Index --> Tax Questions --> IRA distributions to retired ministers
| January 20, 2006 | |
| Could you please tell me if IRA distributions to retired ministers are subject to self-employment taxes?
Thanks. Gene Thiemann | |
| 21 January 2007 | |
| I would think not...ministers are usually W-2 recipients and the W-2 has reflected the correct SS collected from their pay. They are treated as Self employed, but unless they have opted out of SS for religious reasons, they paid SS taxes on the income when the FWT was deferred for the IRA.
If they opted out of SS, then they will also pay no FICA then either. Can't see why they would be subject to FICA at this point :) | |
Death&Taxes (talk|edits) said: | 21 January 2007 |
| Definitely not subject to SE Tax. You paid the SE tax when you went in the door, and that gave you the right to fund and perhaps deduct the IRA, now when you take it out you have already paid your dues. Note that some church plan distributions from their pension funds also qualify for parsonage allowance without SE tax being paid on them. This is a bit OT but should be mentioned. | |
| January 21, 2007 | |
| Dang! That was the data cell trying to light! Yes, they often qualify for housing allowance....! That's what I was trying to think of. Thanks D&T...you read my mind. | |
| January 21, 2007 | |
| IRA distributions are never subject to SE tax, whether distributed to retired ministers or anyone else. | |
Death&Taxes (talk|edits) said: | 21 January 2007 |
| Just to be sure: I was only talking about pension distributions from Church sponsored plans when I mentioned the parsonage allowance. | |
| January 21, 2007 | |
| I sort of ignored part of your message, D&T. I was thinking about just IRA distributions that are reported on Form 1099-R. Sorry, this place takes up so much time that I've gotten where I usually just focus on the question and ignore the rest. :) | |
Death&Taxes (talk|edits) said: | 21 January 2007 |
| I just don't want any ministers going to jail because they thought they read some 'expert' telling them you can use the parsonage allowance against the IRA. | |
| 22 January 2007 | |
| Death and Taxes, I have advised a "minister of the gospel" client that he would never pay SE on his contibutions to his 403b as the distributions are only recognized as ordinary income when they come out, do you concur? Also, on your comment regarding certain church pension distributions I am trying to think through the mechanics. A housing allowance has to be a church approved designation of the ministers compensation before payment, if a minister is retired and receiving pension distributions he is not receiving compensation from his past employer the church? Thanks. | |
| January 22, 2007 | |
| This applies more often to pastors in larger denominations. I know the Methodists do this, and they have a compensation board of some kind who does decree this so the retirement money does qualify. On the local church level, I suppose that all that may be necessary would be the elder/trustee board to designate retirement funds that they pay would qualify for housing. If those funds aren't paid by the church, then it wouldn't matter. | |
Death&Taxes (talk|edits) said: | 22 January 2007 |
| I don't know about the former, but what I usually see from the three I do, all who are now retired, is a 1099R with the gross on Line 1, and nothing on Line 2. Accompanying is a letter explaining that the distribution is for his housing in retirement, or words to that effect [letters are in files 3 miles away but there is a nice Tax Guide for Episcopal Ministers published every year which has an example on Page 39 of the 2006 version]. Naturally they must justify the amount spent, and measure it against the FMV of the rental. For a retiree in Florida, I recall his 27K pension came to 9K of income after computing the allowance. Point is that the retirement board designates the pension as allowance.
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| 22 January 2007 | |
| I would think it would work in both JR1's and D&T's examples, the important point is that you have the "payor" authority approving or designating or the benefit as housing. My applicable clients are of Lutheran MS denomination and the pension is not administered by the local churchs, I wonder if the trustee would give us the written support we need. | |
Death&Taxes (talk|edits) said: | 22 January 2007 |
| It is up to the church pension fund board of the denominational pension fund to make the designation. This is found on Page 13 of the same book prepared by Richard R. Hammar. He clearly states that the housing allowance exclusion is allowed by IRS, but alas does not cite source in footnotes that I see.
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