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You can only do this if you are a district licensed or ordained Nazarene minister over the age of 59½. You may request that Fidelity Investments designate your withdrawal as housing allowance for retirement housing purposes. To do this, contact Fidelity toll-free at 1-866-NAZARENE (629-2736). Fidelity will send a pre-completed form to you to review and sign. If you are married, both you and your spouse will need to sign the form. Please return the completed form to Pensions and Benefits USA, 17001 Prairie Star Pkwy., Lenexa, KS 66220. The Pensions and Benefits USA office will be responsible for approving the request for housing allowance.

Fidelity will issue an IRS Form 1099-R in January of the year following the distribution. They will report any housing allowance designated withdrawal as “taxable amount not determined” in Box 2 of the 1099-R.

Why would I want to take advantage of this housing allowance option?

The availability of a housing allowance exclusion for denominationally-sponsored pension plans has been a very attractive benefit for many retired ministers. In many instances, retired ministers have been able to exclude all of their 403(b) distribution income by having the Plan designate their distribution request as a housing allowance. Keep in mind that the housing allowance designation is limited to denominationally-sponsored plans, like the Nazarene 403(b) Plan.

What factors should I consider in determining the portion of my housing designation?

The responsibility for determining the portion of the housing designation rests solely with the minister. In retirement, IRS guidelines allow a minister to designate the lesser of (1) the fair rental value of the furnished home plus utilities, or (2) the amount actually used to provide a home. Legitimate housing expenses include rent, mortgage payments, interest, home insurance, taxes, repairs, utilities, furnishings, and general maintenance costs for one's primary residence. You will want to document all of your expenses.

What does the IRS mean by “fair rental value”?

Until the Clergy Housing Allowance Clarification Act of 2002, it was unclear that ministers needed to include a fair rental value when computing their housing allowance. This Act updated the Code to make sure ministers include a rental value of their property in determining how much they can exclude from income tax. However, the IRS remains silent on how a minister can go about determining the fair rental value. According to clergy tax specialist and CPA Dan Busby, “the fair rental value should be based on comparable rental values of other similar residences in the immediate neighborhood or community, comparably furnished. One of the best methods to use in establishing fair rental value of your housing is to request a local realtor to estimate the value in writing. Place the estimate in your tax file and annually adjust the value for inflation and other local real estate valuation factors.”

Where can I find additional help in determining my housing allowance?

Carefully review P&B Tax Memo #13 – The Minister’s Housing Allowance. You may also wish to obtain IRS Publication 517 which provides helpful information in this regard.  You may also want to review Dan Busby's booklet, “Ministers' Taxes Made Easy” which is made available to all active Nazarene ministers in January of each year.

NOTE: Distributions made from a 403(b) account (whether designated housing allowance or not) do not need to be included in determining your Social Security self-employment tax liability. This is due to the fact that distributions from a 403(b) account are not considered as "earned income," but as "deferred income."

Will the IRS continue to allow me to receive withdrawals from my 403(b) Retirement Savings Plan account as housing allowance?

On March 15, 2019, the U.S. Seventh Circuit Court of Appeals upheld the constitutionality of the longstanding clergy housing allowance under section 107(2) of the Internal Revenue Code. In a 3-0 decision, the Seventh Circuit Court determined that section 107(2) was constitutional under both the traditional three-factor test set forth in Lemon v. Kurtzman, 403 U.S. (1971), as well as the historical significance test of Town of Greece v. Galloway, 572 U.S. 565 (2014).

In declaring the housing allowance constitutional, the court likened the clergy housing allowance to other similar benefits in the tax code for work-related housing, finding the provision permissible under the First Amendment and well-established legal precedent.

On June 14, 2019, the organization that led the battle against minister’s housing allowance, the Freedom from Religion Foundation (FFRF), announced in a news release that it would not pursue further appeals in the case.