What is a deferred housing allowance?
There are many reasons why a church would find this option attractive. In essence, a deferred housing allowance is a way for the pastor to build equity in a home currently owned by the pastor or future home that he/she will purchase. Many pastors today do not own a home. Many of them rent or live in a parsonage, while others own a home but could use a little extra guaranteed equity in their current residence.

Under a deferred housing allowance plan (Rabbi Trust), the church and the pastor reach a contractual agreement that the church will deposit a monthly set amount of money into an interest bearing account (this can also be stocks or mutual funds) that grows tax deferred. The key to making the money tax deferred is that the church has full control over it and the money can only be distributed to the pastor according to the written agreement. Some churches deposit weekly, others monthly, while others may choose to only deposit when members designate pastoral love gifts, offerings or other gifts. Under this plan the donation given is deductible, and it grows tax deferred over many years.

What makes it attractive?
What makes the deferred housing allowance attractive is that it can be distributed to the pastor all at once or over a period of time, and so long as the church controls the plan, the pastor can claim housing allowance exclusion on the distributions. Additionally, if the pastor is exempt from self employment taxes, he/she will enjoy an additional tax savings. Let us look at an example.
Pastor Tom’s total deferred housing allowance grew to $88,500.00. He retired from his church but continued to play a role in it, providing apostolic oversight to the church. In the past, Pastor Tom’s housing allowance was $29,500.00. He was also exempt from self employment tax. To maximize the tax savings, the church distributed to Pastor Tom three distributions of $29,500.00 over three tax periods. This allowed Pastor Tom to receive his deferred housing allowance 100% tax free because according to the IRS, you can claim the clergy housing allowance exclusion if the account is held in a church-controlled retirement plan.

We will show you step-by-step how to set one up for the the pastor and every other minister of the church.