Why a Church Should Use a 403(b)


A 403(b) is a retirement account similar to a 401(k) – the biggest difference is that non-profits generally use the 403(b) (hospitals, churches, schools, public foundations). The account name 403(b) is taken from the section “403(b)” in the Internal Revenue Code.

How a 403(b) is Similar to a 401(k)

  • Both allow employees to contribute pre-tax (Roth if your plan allows) directly from your paycheck.
  • Both have contribution limits.
  • If you are 50+ you can contribute an additional money each year. (These limits are subject to your income: you cannot contribute more than you earn. Also, your employer might limit the percentage of your income that you can contribute to a 401(k), but this depends on their plan.)
  • Both require you to meet a distributable event before you can access your funds which can include: reaching age 59 ½, separation from employment, disability, hardships, and death.
  • Both plans may allow you to borrow from your account.
  • Both plans have investment options depending on the vendor your company uses.

Why a Church Should Use a 403(b)

In many ways, your church operates like a business does. It has an income (tithe) and pays wages to employees and can provide all the benefits of an employer in the business world.

For those in the ministry, you probably would agree that the finances can sometimes be tight and benefits for the employees are slim beyond a modest paycheck. This is why the 403(b) is a great tool for churches! In most cases, the church can offer a 403(b) retirement benefit to their employees for free! How many times can an employer offer something to their employees that doesn’t cost any money? Free benefits are great – so churches definitely need to allow employees to open their own 403(b) account and save for retirement.

Secondly, what better way is there to practice what you preach about good stewardship than providing a tool for your employees to save for their future? By providing employees with 403(b) accounts, they can pay themselves before Uncle Sam and exercise the principles of saving that resonate throughout the Bible.

Thirdly, ministers can save for retirement and can withdraw the funds at retirement as a housing allowance. You might be familiar with the minister’s housing allowance – an IRS rule that provides ministers with a tax break to cover their housing expenses for the year. (If you’re not, I’ll cover that in another article) For ministers, they can actually contribute to their retirement account pre-tax and withdraw funds as housing (no-tax) up to their actual expenses or the fair rental value of their property, whichever is less.

So basically the three biggest reasons are:

  1. It’s a free benefit for employees.
  2. It promotes good stewardship of money.
  3. The minister’s housing allowance at retirement.

Where to Start a 403(b) Plan

First, check with your church’s denominational headquarters to see if there is a 403(b) provider that specializes in your denomination. (Examples include: Guidestone for Southern Baptist or Benefits Board for Church of God)

If they do not provide you with a recommended 403(b) provider or if you are a non-denominational church, then seek out an institution that is familiar with operating a 403(b) church plan.

The plan administrator that sets up your 403(b) should provide the church with all the necessary documents and instructions for sending contributions. All it takes is a quick phone call or two and your church will be on its way to establishing a 403(b) retirement plan. What are you waiting for?

Does your denomination offer a 403(b) plan? Leave a comment!

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  1. Michael

    CLOSE THE IRS! How bad do they have to get? the tax code is way past ridiculous. A flat sales tax of 10% and no more criminalization of the tax payer! Two points on this, first if you aint got money then you can’t spend so you don’t pay. The more money you got the more you spend the more you pay if that aint progressive enough to sting bad! Lastly if 10% works for God then its MORE than enough for the gubment! Time to put locks on the IRS doors and seize payroll just they way they do things!

  2. Rhonda Washington

    I have a 403b & 403b Roth via Valu Teachers with my job in Higher Education for 8 yrs. I also recently became a Retirement Specialist Rep for them. Although I don’t make much (Less than $33,000) I have $400 total taken out of my paycheck for my 403b, 403b Roth, and employer retirement account. I also have a separate Roth account with a brokerage firm in which I contribute only $25 per month, but previously maxed it out at $5,000 per year for a few years. I’ve had that account for over 13 years.

    I’m doing well in regard to my retirement funds, but need to concentrate on my Emergency Fund & paying off my debts (CC bill and medical expense).

    403b is definetly an option for those in the non-profit and education field.

  3. jerrylewis

    This is very interesting, but basing on my personal point of view be it 403 (b) or 401 (k) the point is it is best to save for your retirement. It is up to the employer or the employee where they are more suitable to contribute the funds.

  4. Our ministry uses a 403(b) plan and it has been a very effective tool for me personally as I save for retirement. Anything pre-tax is a good thing!