Profit Sharing/401(k) Church Retirement Plans

A Profit Sharing/401(k) church retirement plan is a defined contribution plan specifically designed for the unique needs of churches or church organizations. While similar to other Profit Sharing/401(k) plans, a church plan is not subject to certain ERISA requirements, such as annual 5500 reporting. In addition, a Profit Sharing/401(k) church retirement plan offers retired ministers the ability to have retirement distributions designated as housing allowance, which is a significant tax advantage over traditional defined contribution retirement plans.

Who can participate?

All employees are eligible to participate unless the plan specifically excludes them.

Types of plan contributions

• Based on specific plan provisions, participants can elect to have their employer to withhold money from their paycheck  that can be contributed as a tax-sheltered, after-tax or Roth elective deferral contribution.
• Based on specific plan provisions, employers can make matching, non-matching or discretionary contributions.

Eligibility

The employer has flexibility in determining which employees are eligible. As an example, an employer may impose age and/or service requirements before an employee can participate in the plan.

Potential tax advantages

• Retirees who are ministers may have retirement benefits designated as a tax-free housing allowance within legal limits.
• Employer contributions are not subject to Social Security tax or income tax at the time of contribution.
• Tax-sheltered participant contributions are not subject to income tax until distributed.
• Tax-sheltered participant contributions by ministers are not subject to Social Security tax.
• Rollovers from other eligible retirement plans or Traditional IRAs are possible without tax consequence.
• Earnings on all contributions and rollovers are tax-deferred.
• Contributions and earnings on Roth elective deferral contributions, if permitted in the plan, can be withdrawn tax-free if certain conditions are met.

To learn more about the retirement plans available to your specific organization, email us or call us at 1-888-98-GUIDE (1-888-984-8433).