Distribution from Minister's Pension (before 59 1/2) treated as Manse?

[jasdlm]

Client took a distribution from a 403(B ). Distribution code is 1. Box 2a is empty, and 'taxable amount not determined' is checked. Plan administrator says the distribution can be counted as manse/housing allowance.

1) Is this true? (I'm thinking it might be from what I have read.)

2) How do I report this?

3) I assume I have to total the Manse received from the Church and the distribution together to make certain the housing expenses are equal to or exceed the distribution plus Manse?

Is MAMalody still around? I feel like I haven't seen him this year. Maybe I'm just too tired to remember.

Thanks!

[JJStephens]

Only a denominational pension qualifies to be treated as housing allowance and then only if the denomination has so designated it (most do). 403b's do not qualify for this treatment.

[jasdlm]

I believe it to be a 403(B ). The information from the plan administrator says at the top 'Participation Housing Allowance Distribution Guide - 403(B ) Plan'. The distribution form (client kept a copy) has a box that is checked that says 'I certify that my entire distribution will be excluded from my gross income and used as housing allowance.'

The top of the form says 'Housing Allowance Distribution Request 403(B ) Plan.

Do you think it's just erroneous?

[jasdlm]

SORRY. Forgot the spaces in the b ) AGAIN.

[Margaret CPA in OH]

If the client is retired clergy and the church established a retirement account, a 403 ( b )(7) or (9) plan, some or all of the account distribution can be designated as a housing allowance and excludable so long as the requirements for a valid housing allowance are met. The designation must be made before payment is made. Pages 528-529, 2014 Church and Clergy Tax Guide.

There is much more and IRS is still mulling over some of this but I have taken it for retired Methodist ministers.

[jasdlm]

Thanks. What do I do about the 'Early Distribution (code 1)'? I assume (in ATX) that I use 0 for the taxable amount and add it to the housing allowance for SE tax?

[joanmcq]

Is it still subject to the penalty if used as housing? I'd think so.

[MAMalody]

1. The distribution can be treated as housing allowance as long as it is designated prior to distribution.

2. The rules governing premature distributions would apply.

3. The distribution is not treated as SE income as a regular housing allowance would be.

4. The part of the qualified housing allowance that is properly used for housing would be entered on LIne 21 as a negative figure. This will balance out the taxable reporting required by the distribution code 1.

5. This could be a plan established by a church. It does not neeed to be established by a denomination.

I cannot tell from the OP if this is an active pastorate or note. The problem we may have here is that the IRS position is you cannot be actively involved in ministry, receiving a housing housing allowance from a church for current services rendered and receive a contemporaneous housing allowance distribution from a 403(b ). The designation of housing allowance by a retirement plan is determinative in whether the individual qualifies only that the plan is designated as sure or the pastor has requested such designation. All the distribution docs I have seen have always indicated it is the pastor's responsibility to determine the correct taxability of any distributions, that is one of the reasons box 2 of the 1099 R is normally blank.

[jasdlm]

You are a wealth of knowledge! I am so grateful. My concern is that the person is currently in Children's Ministry at a Church in a different denomination and is working toward Ordination in another denomination, so the person is retired from the Ministry in the denomination that distributed the pension, but not retired from the Ministry in general. Thoughts?

[Randall]

Good timing for me on this post. Was just asked about this by a client. Does not pertain to his 2013 return.

[MAMalody]

I can't tell if we are talking about two different denominations or three, anyway, here are my thoughts for what they are worth...two cents.

1. The IRS considers a change of denominations to be a change of faith. This opens up the two year window for form 4361 consideration. Remember this is a theological decisiion not an economic one.

2. Being in children's Ministry does not automatically qualify a pastor for a housing allowance. Remember he must qualify as a dual status pastor to be able to receive a housing allowance.

3. Based on the denomination, working on Ordination, may mean he could not qualify as dual status therefore not be able to receive a housing allowance.

4. Assuming he is qualified in the Children's Ministry to have a housing allowance, can he...I would lean towards no, for tax return purposes. A housing allowance, is a housing allowance, is a housing allowance and overlapping is not allowed. The answer here is to pick the larger one as housing and discontinue/disregard the other.