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EPC 403(b)(9) RETIREMENT PLAN

UNRAVELING THE MYSTERY

OF THE MINISTERIAL HOUSING ALLOWANCE

INCOME EXCEPTION FOR RETIRED MINISTERS

The EPC offers a 403(b)(9) Defined Contribution Retirement Plan to eligible employees and ministers. A unique feature of a 403(b)(9) is that ordained ministers may allocate a portion of their retirement plan withdrawals to cover housing expenses on a tax-exempt basis.

This simple Q&A format is designed to help with any questions regarding the Housing Allowance provision offered in by the EPC’s 403(b)(9) plan. For additional questions, please contact BRI at benefits@epc.org or 407-930-4492.

Use these quicklinks to navigate to a specific question:

1. What is the ministerial housing allowance tax exemption and how does it reduce my federal income tax?
2. Who qualifies?
3. I receive a housing allowance now while actively employed; is that the same thing?
4. How am I eligible for housing allowance if I’m no longer an active minister/Teaching Elder?
5. What portion of my 403(b)(9) account balance does the EPC designate as eligible for housing allowance?
6. How exactly is it that my taxes will be lower if I keep my funds in the EPC 403(b)(9) plan?
7. What are a minister’s responsibilities in being prepared to report housing allowance expenses?
8. Are there limitations to the amount of housing expenses I can exclude from income each year?
9. What qualifies as a housing allowance expense that can be excluded from income?
10. What housing expenses are NOT eligible?
11. How do I calculate the fair rental value of my home?
12. Can I use funds from my EPC 403(b)(9) to purchase a home and claim tax exemption on the full amount?
13. I don’t own my home; I rent. Does my monthly rent payment qualify as a housing allowance expense?
14. When can I start withdrawing funds to cover housing expenses without paying a penalty or income taxes?
15. When issuing my 1099-R, how does Fidelity know how much I have taken out of my EPC 403(b)(9) retirement plan for housing expenses and how much for other purposes?
16. What is the process of taking a distribution from my EPC 403(b)(9) retirement plan that I will use for housing expenses?
17. Is a surviving spouse who is not a minister eligible to use some or all of their spouse’s housing allowance?
18. Can I use funds I rolled into my 403(b)(9) from other retirement accounts for tax-exempt housing allowance withdrawals?
19. Is there a difference between a 403(b) and a 403(b)(9)?
20. Do I need to withdraw my 403(b)(9) funds and close my account upon leaving my employment at the EPC?
21. My financial advisor told me I can roll funds out of my EPC 403(b)(9) into a retirement account such as an IRA or retirement annuity and I will not have to pay any penalty or tax. Is that correct?
22. Can I use funds rolled into my EPC 403(b)(9) from another workplace retirement fund such as a 401(k) or 403(b) to claim housing exemption?
23. Are both employer and employee (my) contributions to my account allowed to be used to cover housing expenses on a tax-exempt basis when withdrawn?
24. Fidelity automatically withholds income taxes when I make withdrawals. How do I draw out funds to cover housing expenses and not have taxes withheld?
25. How do I report my housing allowance distribution when filing my taxes?
26. How do I declare my allowable housing expenses when I file my annual federal tax return so they are deducted from my income when calculating my taxes?

1

What is the ministerial housing allowance tax exemption and how does it reduce my federal income tax?

After turning 59½, you may begin making penalty free withdrawals from your EPC 403(b)(9) retirement account. Monies drawn from the account and used for allowable housing related expenses can be excluded from your income in that year, and will therefore, not be subject to federal income taxes. Monies drawn from any other retirement account do not qualify for this exemption! For example, if you are in the ~20% federal income tax bracket and you draw out $10,000 to cover housing expenses in a given year from your EPC 403(b)(9) account, you will be able exclude the $10,000 from your income that year saving you ~$2,000 in federal income taxes. Without the exclusion, your withdrawal of $10,000 would require you to pay ~$2,000 in taxes leaving you with only $8,000 to spend on housing expenses.

2

Who qualifies?

You must be an ordained minister, according to IRS rules. (The same benefit is available to minister-equivalents in other faiths.)

3

I receive a housing allowance now while actively employed; is that the same thing?

No, here we are talking about when you will begin drawing funds from your retirement plan to cover housing expenses: after you are at least 59½ (so there is no penalty for early withdrawal) and are no longer living in church-provided housing. If your church is currently providing you with a parsonage and/or reimbursement for certain housing expenses, you cannot also claim those same housing expenses as tax-exempt withdrawals when taking funds from your EPC retirement account.

4

How am I eligible for housing allowance if I’m no longer an active minister/Teaching Elder?

During your time as an active ordained minister, up to 100% of employer and employee funds contributed to your EPC 403(b)(9) retirement account were designated for your use as housing allowance, enabling you to draw down those funds over time to pay for allowable housing expenses. Those withdrawals are not included in your taxable income, thus reducing your federal income tax. Internal Revenue Service tax code extends this provision to both active and retired ministers.

5

What portion of my 403(b)(9) account balance does the EPC designate as eligible for housing allowance?

The EPC designates 100%. Both your church’s contributions and your contributions are eligible.

6

How exactly is it that my taxes will be lower if I keep my funds in the EPC 403(b)(9) plan?

The EPC 403(b)(9) is a defined contribution plan specifically designated for the unique needs of religious organizations. The 403(b)(9) is the only defined contribution plan that includes the unique provision offering ministers the ability to have retirement distributions designated as housing allowance. Any money you withdraw from the EPC 403(b)(9) Retirement Plan to cover housing expenses can be excluded from income when computing your taxable income. Keep in mind that if you roll your money out of a 403(b)(9) to an IRA or any other type of retirement account, you will forfeit the housing expense tax exemption when you draw on your funds in the future.

7

What are a minister’s responsibilities in being prepared to report housing allowance expenses?

As a taxpayer, a minister must:

1. Determine if he or she is eligible for housing allowance.
2. Keep records to substantiate the cost of everything they exclude from income as housing expenses.
3. Report and pay taxes on any portion of income withdrawn from the 403(b)(9) that exceeds the lesser of actual housing expenses or fair market rental value of the home (furnished, plus utilities).

8

Are there limitations to the amount of housing expenses I can exclude from income each year? 

Yes, there are three qualifiers. You may designate as your housing allowance expenses the lesser of:

Housing allowance designated by the EPC. (The EPC designates 100% of the money your church or you contribute to your EPC retirement account while employed as Housing Allowance.)
Actual housing expenses. (See listing of eligible expenses in Question 9 below.)
The fair rental value of your home (including furnishings, plus the cost of utilities).

9

What qualifies as a housing allowance expense that can be excluded from income?

The list below is not intended to be all inclusive:

Mortgage payments (principal and interest).
Rent payments (if you rent instead of own).
Real estate taxes.
Property insurance.
Utilities (gas, electric, water, sewer, trash pick-up, local phone service).
Appliances and furniture (purchases/rental costs and repair).
Remodeling expenses.
Homeowners Association dues.
Pest control.

Remember, there are limitations on the total dollar amount of expenses you can exclude.

10

What housing expenses are NOT eligible?

The list below is not intended to be all-inclusive.

Cleaning Services
Food
Domestic Help
Second Home, Vacation Home, Business Property, Farm
Home equity loan payments when the original loan was used to pay for things other than housing expenses such as tuition, car purchase, debt reduction, etc.

11

How do I calculate the fair rental value of my home?

A suggested method is as follows:

1. Search an online website that markets rental properties in your area to find the monthly rental rates for a property comparable to yours, or talk to a local real estate broker. If you are renting your home, you already have the answer.
2. Estimate the monthly rental value of your furniture, appliances, and other furnishings. There may be furniture rental companies in your area that you can use as a resource.
3. Calculate the total of your average monthly utility bills. (Electric, gas, water, sewer, trash pickup, etc.)
4. Add the above three items together and multiply by 12 to estimate annual fair rental value.

12

Can I use funds from my EPC 403(b)(9) to purchase a home and claim tax exemption on the full amount? 

No. You can use funds from your account for a down payment, but the amount allowed will be subject the normal annual restrictions referenced in Question 8.

13

I don’t own my home; I rent. Does my monthly rent payment qualify as a housing allowance expense?

Yes.

14

When can I start withdrawing funds to cover housing expenses without paying a penalty or income taxes?

Withdrawals from retirement accounts are allowed without penalty once you have reached age 59½. If you are age 59½ or older, funds you withdraw from your EPC 403(b)(9) retirement account that are used for allowable housing related expenses will be excluded from your income in that year and therefore not subject to federal income tax. (This assumes you are not still living in church-provided housing and/or being reimbursed for your housing expenses.)

15

When issuing my 1099-R, how does Fidelity know how much I have taken out of my EPC 403(b)(9) retirement plan for housing expenses and how much for other purposes?

You tell them! Whenever you make a withdrawal to be used to pay housing expenses, you instruct Fidelity not to withhold any federal income taxes on the portion you will be using to pay housing expenses.

16

What is the process of taking a distribution from my EPC 403(b)(9) retirement plan that I will use for housing expenses?

Complete the distribution form, available by clicking here. Note the following instructions: 

In Step 2, select the option for “EPC Minister Housing Allowance.”
In Step 4, select the option for “Payable to me.”
Check the box underneath “I certify that I am eligible for the EPC Minister Housing Allowance.”

17

Is a surviving spouse who is not a minister eligible to use some or all of their spouse’s housing allowance?

No, ministers are eligible for housing allowance with respect to the ministerial services they provide. IRS Code does not contemplate that one person can receive housing allowance based on another person’s service.

18

Can I use funds I rolled into my 403(b)(9) from other retirement accounts for tax-exempt housing allowance withdrawals?

No. You can only use funds rolled into the EPC 403(b)(9) from another 403(b)(9), and funds you or your church/employer contributed to your EPC 403(b)(9) account while you were employed with the EPC. If you have rolled over funds from another retirement account, our Plan Administrator (Fidelity Investments) keeps track of the sources of the funds in your account.   

19

Is there a difference between a 403(b) and a 403(b)(9)?

Yes. A 403(b)(9) is a defined contribution plan specifically designated for the unique needs of religious organizations. The 403(b)(9) is the only defined contribution plan that includes the unique provision offering retired ministers the ability to have retirement distributions designated as housing allowance. A 403(b) does not have this provision.

Keep in mind that if you roll your money out of a 403(b)(9) to an IRA or any other type of retirement account, you will forfeit the housing expense tax exemption when you withdraw those funds.

20

Do I need to withdraw my 403(b)(9) funds and close my account upon leaving my employment at the EPC?

No, you can leave funds in your EPC 403(b)(9) account indefinitely. You own the account and can manage it as you please. You can choose your investments from 23 different investment options, as well as a brokerage window that gives you access to thousands of other investments. Free professional point-in-time advice on your account and investment selections is available through Fidelity by calling 877-895-5986. Important note: If you are a minister who qualifies for the ministerial housing allowance tax exemption, you will lose that exemption on any monies you rollover into a retirement account that is not a 403(b)(9) account.

21

My financial advisor told me I can roll funds out of my EPC 403(b)(9) into a retirement account such as an IRA or retirement annuity and I will not have to pay any penalty or tax. Is that correct?

There is no tax or penalty assessed when moving funds from one qualified retirement plan to another. Federal income tax is assessed only at the time distributions are taken. However, it is very important to understand that the ministerial housing allowance tax exemption can only be taken on funds distributed from a 403(b)(9) Retirement Plan account. Once you move your funds out of the EPC 403(b)(9) account to any other retirement account or plan, you will no longer be able to claim exemption from federal income tax on moneys you withdraw to cover housing expenses.

22

Can I use funds rolled into my EPC 403(b)(9) from another workplace retirement fund such as a 401(k) or 403(b) to claim housing exemption?

No.

23

Are both employer and employee (my) contributions to my account allowed to be used to cover housing expenses on a tax-exempt basis when withdrawn?

Yes, both employee and employer contributions can be counted.

24

Fidelity automatically withholds income taxes when I make withdrawals. How do I draw out funds to cover housing expenses and not have taxes withheld?

You tell Fidelity! Whenever you make a withdrawal to be used to pay housing expenses, you instruct Fidelity not to withhold any federal income taxes on the portion you will be using to pay housing expenses. Normally, 403(b) and 401(k) Plan Administrators are required to withhold 20% for federal income taxes on distributions unless otherwise instructed, so be sure to tell them. 

25

How do I report my housing allowance distribution when filing my taxes?

If you take a distribution for the purpose of housing allowance and meet the eligibility requirements, Fidelity will provide you with a Form 1099-R at the end of the year with the note “taxable amount not determined.” Make sure to have your 1099-R available when filing your taxes. If you did not receive a 1099-R and made a withdrawal for the purpose of housing allowance, contact Fidelity at 800-343-0860.

26

How do I declare my allowable housing expenses when I file my annual federal tax return so they are deducted from my income when calculating my taxes? 

There are provisions in the federal tax code related to the ministerial housing allowance. When preparing your tax return, whether you use tax software or a professional preparer, questions about whether or not you are a minister will come up. When answering yes, you will be taken to other questions to help you properly complete forms—such as entering your 1099-R reported income so you can take advantage any available tax savings. If completed properly, the portion of your reported 403(b)(9) withdrawals taken that year to cover your allowable housing expenses will automatically be deducted from the income reported on your 1099-R. Your tax will be calculated based on your income after being reduced by your allowed housing expenses.

Information provided in this web site does not constitute legally binding advice. EPC benefits are subject to the provisions of the Medical Plan and Retirement Plan documents available on this web site or in print from EPC Benefit Resources, Inc. (BRI), 5850 T.G. Lee Blvd., Suite 510, Orlando FL 32822. For more information, contact BRI at benefits@epc.org or 407-930-4492 (voice and fax).

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