(b)lines Ask the Experts – Can Church Plan Employees Contribute More?

Michael A. Webb, vice president, Cammack Retirement Group, answers: 

Yes, though these rules don’t receive a lot of attention, they do exist. Such rules apply to all church plans, including plans of churches and qualified church-controlled organizations (QCCOs) under 3121(w) as well as non-QCCO religious organizations, such as church hospitals. These unique church plan rules are, as follows:

1)         There is an election, subject to a $40,000 lifetime maximum, under which church employees can exceed their 415 percentage limit (generally, 100% of compensation), up to an annual maximum of $10,000. This election can be useful, if, for example, individuals who have taken a vow of poverty (which is not unusual for clergy in some denominations) and thus receive little or no compensation from the church. Even if such an individual receives zero compensation, $10,000 may be contributed to a 403(b) on that individual’s behalf for a period of four years ($10,000 x 4 = $40,000 lifetime limit). Of course, the lifetime maximum must be tracked over time, which is a bit of an administrative burden, but not nearly as much work as calculating the 15-year catch-up election, for example.

2)         There is an election under which foreign missionaries may contribute the greater of $3,000 or their includible compensation under Section 403(b)(3). This election is somewhat complicated, but is summarized nicely by David Powell with Groom Law Group in a prior Ask the Experts column. 

It should also be noted that, besides these two special church plan elections, there is a special way that service is counted for church employees for purposes of the 15-year catch-up election. All years of church service, regardless of whether such service was performed for the current church plan sponsor, are aggregated for purposes of determining whether an individual has completed the years of service necessary to qualify for the 15-year catch-up.

Finally, keep in mind that certain ministers who are self-employed or chaplains can make elective contributions of their own funds to a church 403(b)(9) plan up to the usual elective contribution limits, and deduct them from their individual income taxes as an above-the-line deduction. That is found in the deduction rules of Code section 404(a)(10). Of course, the plan must permit such contributions.

Church employees used to have additional special contribution limit elections, but those were repealed when the maximum exclusion allowance (remember that?) was eliminated in 2002.

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NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.