Planning Ahead: The Parsonage Tax Benefit in Retirement
Eligible clergy can continue to declare a housing (parsonage) allowance on distributions from their RPB 403(b) and Rabbi Trust accounts as well as from their MetLife and/or John Hancock annuity and on disability payments from our Long Term Disability Plan. This means the portion of your distributions used for allowable housing expenses are not subject to federal income tax.
Make sure you understand the important features and limitations of this tax benefit explained below. And we suggest that you consult your financial or tax advisors for assistance in tax planning and compliance with IRS parsonage regulations.
What RPB Does
RPB’s Board of Trustees will automatically designate 100% of your 2023 distributions as eligible for a housing allowance.
It's then up to you to determine your actual housing expenses. By law, the amount that you can exclude from gross income is limited to the lesser of:
- the amount you spend on allowable housing expenses, or
- the fair market rental value of your furnished home
What You Do
At tax time, you’re responsible for determining your gross taxable income on your tax return:
- You’ll receive a tax Form 1099-R that reports your annual distributions from your RPB 403(b) account.
- On the form, the box ‘Taxable Amount Not Determined’ will be checked.
- You and your tax preparer will calculate your allowable housing expenses and subtract that amount from your income to get the correct taxable amount.
If you have a Rabbi Trust account and receive distributions, you will receive a tax Form W2 and/or a 1099-Misc.
What Else to Keep in Mind
- The following sources of income from RPB are eligible for the parsonage tax benefit:
- Withdrawals from an RPB 403(b) account
- Withdrawals from an RPB Rabbi Trust account
- Disability payments from RPB’s Long Term Disability plan
- Payments from a MetLife and/or John Hancock Annuity through RPB
- If distributions are more than your calculated housing expenses, you may have tax considerations. If you want to withhold taxes on the excess portion, call Fidelity at 800-343-0860. You can also speak with your tax advisor about making estimated tax payments during the year.