I know there are many avenues to save for retirement such as IRA's, Roth IRA's, and SEP-IRA's but I have come across a 403(b) for pastors. Anyone familiar with this and can you point me to a good source of information regarding 403(b)'s?
http://www.schwab.com/public/schwab/research_strategies/market_insight/r...
Places to go for help:
Schwab
Fidelity
Wells Fargo Advisers (* disclosure ... I work for the parent company)
Waddell and Reed
Bank of America
Edward Jones
Etc.
A 403(b) is only good if the church is matching your contributions (i.e. free money). Otherwise, the best way to go is a Roth IRA. The contributions are not tax deductible, but the growth and distributions (at retirement) are tax free.
Roth is limited to $ 5000 per year w $1,000 "catch up" for over a certain age. (Schwab link above has a table)
But if you contribute $ 5000 or less, Matt's right, the Roth is probably a better deal
This is where I first read about this http://www.baptistbulletin.org/wp-content/uploads/2009/02/janfeb_09_20-2... page 3 point 5 says...
I recommend the plan begin as early as possible, with
a minimum annual contribution of $2,400, building
to $6,000 as soon as possible—and even more
if he starts the plan after 40 years of age. A pastor
should not be in IRAs or Roth IRAs. He should be
in a 403(b) pension plan, with the deposits made by
the church. This exempts the amount from self-employment
tax and makes the distributions eligible for
housing allowance upon his retirement, which would
shelter the income from federal and state income
taxes.
I think you can trust the Baptist Bulletin on this!
Wouldn't it be wise to have both?
The 403(b) does provide for tax free housing allowance after retirement, but you have to pay taxes on monies used for normal living expenses. If you pay taxes now (which some clergy do not, at least any appreciable amount), it can be helpful to set some aside tax free.
The Roth IRA is taxed up front, but you won't have to pay taxes on it after retirement, housing included. The advantage of the 403(b) is tax shelter now for housing later.
So I think having both, if you can do it, is wise. However, it seems to me that the Roth should be heavier weighted.
I understand that with a 403(b) designed for clergy that you can offset your SS tax and offset the income with your housing allowance during your retirement years. Here is a site I ran across. This is not a non-profit 403b it is a 403b especially for clergy. Check out this site and I would appreciate your feedback.
http://www.clergysupport.com/housing_allowance.html