What Is a 403(b)(9) Church Retirement Plan?

A 403(b)(9) retirement plan is a specialized savings vehicle for employees of churches and their affiliated organizations. It functions under a distinct set of regulations within the Internal Revenue Code that accommodate the unique nature of religious organizations. The primary distinction of a 403(b)(9) plan is its treatment as a “retirement income account.” This structure provides greater flexibility in administration and investment options compared to standard 401(k) or 403(b) plans.

Plan Eligibility and Establishment

For an organization to sponsor a 403(b)(9) plan, it must qualify as a church or a qualified church-controlled organization (QCCO). The IRS defines a “church” based on characteristics like having a distinct legal existence, a recognized creed, and an established place of worship. A QCCO is a church-affiliated organization that does not primarily offer goods, services, or facilities for sale to the general public on more than an incidental basis. Examples include church-run schools or social service agencies closely tied to the church’s mission.

Once organizational eligibility is confirmed, the church defines which employees can participate. A 403(b)(9) plan can be selective, allowing the church to exclude certain classes of employees or set specific age or service requirements. These rules must be clearly laid out in the plan’s documents.

The creation of a 403(b)(9) plan requires the formal adoption of a written plan document. This document details all material terms, including eligibility, contributions, distributions, and investment structures, and must state the intent to establish a retirement income account.

Contribution Rules and Limits

Funding for a 403(b)(9) plan comes from employee salary deferrals and employer contributions. Employees can contribute a portion of their salary on a pre-tax basis, reducing their current taxable income. Some plans also offer a Roth option, where employees contribute after-tax dollars for tax-free withdrawals in retirement.

Employer contributions can be matching, where the church contributes based on the employee’s deferral, or non-elective, which are made for eligible employees regardless of their own contributions. The SECURE 2.0 Act of 2022 allows employers to designate these contributions as Roth if the plan permits.

The Internal Revenue Code sets annual contribution limits. The employee elective deferral limit for 2025 is $23,500 for those under age 50. Employees 50 and over can make an additional “catch-up” contribution of $7,500. A new provision for 2025 allows participants aged 60 through 63 to make a higher catch-up contribution of $11,250, if the plan allows.

A separate overall limit applies to the sum of all contributions from all sources. For 2025, this limit is the lesser of 100% of the employee’s compensation or $70,000.

Some plans offer a special 15-year service catch-up contribution for employees who have worked for the organization for at least 15 years. The limit for this catch-up is the lesser of $3,000, $15,000 reduced by previous special catch-up contributions, or $5,000 times the number of years of service minus total prior elective deferrals.

Unique Investment and Administrative Features

As retirement income accounts, 403(b)(9) plans are not restricted to holding only annuity or mutual fund investments. They can hold a broader array of assets, including collective investment trusts and other pooled funds, offering greater diversification. The assets must be separately accounted for and used for the exclusive benefit of participants.

A significant feature of a 403(b)(9) plan is its general exemption from the Employee Retirement Income Security Act of 1974 (ERISA), a federal law that sets minimum standards for most private industry retirement plans. This exemption relieves the church of many administrative burdens and costs. Because they are not subject to ERISA, these plans have different requirements:

• They are not required to file the annual Form 5500 with the Department of Labor.
• They are not subject to ERISA’s fiduciary standards.
• They do not need to provide participants with a Summary Plan Description (SPD).
• They are exempt from annual discrimination testing that prevents plans from favoring highly compensated employees.

Distributions and Rollovers

Participants can take distributions from their 403(b)(9) accounts after reaching age 59½, separating from service, becoming disabled, or in the event of death. Some plans may also permit hardship distributions for an immediate and heavy financial need, subject to strict IRS rules.

Withdrawals of pre-tax contributions and all associated earnings are taxed as ordinary income. If the plan allows for Roth contributions, qualified distributions are tax-free, provided the account has been open for at least five years and the participant is at least 59½ years old.

Minister’s Housing Allowance

A unique feature for ordained, licensed, or commissioned ministers is the ability to designate a portion of their retirement distributions as a tax-free housing allowance. This rule allows a retired minister to exclude from gross income the portion of their distribution used for housing expenses, like mortgage payments, utilities, and repairs. The amount of the exclusion cannot exceed the fair rental value of the home.

When a participant leaves their employer, they can roll over their plan assets. A rollover allows the individual to move their savings to another eligible retirement plan, such as an IRA or a new employer’s 401(k). This process is generally tax-free and allows the funds to continue growing in a tax-advantaged account.