The housing allowance in retirement

The short answer

A retired minister can generally exclude from income tax the part of his or her retirement income that is designated as housing allowance. Retirement distributions may qualify when paid from a qualifying church or church-plan arrangement, attributable to past ministerial services, and properly designated in advance. The same three-number limit applies as in active ministry: you exclude the lowest of what was designated, what you actually spent to provide your home, and the home’s Fair Rental Value.

It is also, according to Publication 517, free of self-employment tax. In retirement the housing allowance shelters you from income tax and SECA does not come back for it.

What’s inside

1. Which retirement income qualifies
2. Who designates it, and when
3. The three numbers still apply
4. No self-employment tax in retirement
5. The rollover that ends it
6. How it shows up on your return
7. When a spouse is left
8. A checklist for the five years before you retire

1. Which retirement income qualifies

Publication 517 says a retired minister can exclude the rental value of a home furnished as pay for past ministry, or the part of a pension that is designated as a rental allowance. In practice that means:

• Distributions from a church or denominational retirement plan, such as a 403(b)(9) church plan or a denominational pension, from contributions made while you served as a minister. Plan administrators such as GuideStone and Everence describe these as eligible, and denominational boards of pensions routinely designate them.
• Payments from a church to a retired pastor for past services, such as a pastor emeritus arrangement, where the church designates part of what it pays as housing.

What generally does not qualify:

• An IRA, even if every dollar in it came from ministry pay.
• Retirement accounts outside qualifying church-plan treatment generally do not qualify, but plan status should be confirmed with the administrator and a clergy tax advisor.
• Social Security and other income that is not from a church plan.

Whether a particular plan qualifies is a question for the plan itself. Ask it directly: “Is this a church plan, and do you designate housing allowance for retired ministers?”

2. Who designates it, and when

In active ministry your church board designates the allowance. In retirement it is usually the plan or the denomination’s pension board that does it, often by a standing resolution covering every retired minister in the plan. Some plans designate up to 100% of your distributions; some ask you to request it on a form.

As with any housing allowance, the designation must come in advance. A designation made in March does not reach back to January. If you are not sure one is in place for you, ask for it in writing this year.

If your church pays you directly in retirement, its board designates the housing portion the same way it did while you served. The free board resolution template →

3. The three numbers still apply

A designation of 100% does not mean an exclusion of 100%. You exclude the lowest of:

1. The amount designated,
2. What you actually spent to provide your home that year, and
3. Your home’s Fair Rental Value, furnished, plus utilities.

The second number is the one that changes most in retirement. A paid-off house means no mortgage payment, so actual expenses often drop to property tax, insurance, utilities, repairs and furnishings. Anything designated above the lowest number is taxable income, so the records still matter. The three numbers, explained → · You paid off the house. Now what? →

One caution about large withdrawals: the exclusion is limited to a single year’s housing costs. A large lump sum designated as housing does not shelter more than that year’s three numbers allow. Plan big withdrawals with your preparer.

4. No self-employment tax in retirement

Publication 517 lists, among the items that are not self-employment income, both the rental value of a parsonage or a housing allowance provided to you after you retire and pension payments or retirement allowances you receive for past ministerial services. A retired minister does not pay SECA on a designated retirement housing allowance.

That makes it one of the most valuable things in a minister’s retirement. Every dollar properly excluded is a dollar of income tax you do not pay, year after year.

5. The rollover that ends it

The most common way retired pastors lose the allowance is a well-meant rollover. An advisor suggests consolidating everything into one IRA, and the money leaves the church plan. IRA distributions generally cannot be designated as housing allowance, so once the money is in an IRA the exclusion is usually gone for good.

Before you move money out of a church plan, ask your plan and your preparer what happens to the housing allowance. Some church plans accept rollovers in from other accounts and may let those dollars be designated. Ask about that too, in writing.

6. How it shows up on your return

Plans report distributions on Form 1099-R, usually showing the full amount paid. Many leave the taxable amount blank or mark it “not determined,” because only you know your housing expenses and Fair Rental Value.

You or your preparer then report the full distribution and, as the taxable amount, only what is left after the housing exclusion. Keep the designation letter, your housing expense totals and your Fair Rental Value with the return. That is the support if anyone asks. Tax software usually handles this in the 1099-R section with a question about a retired minister’s housing allowance. Filing a minister’s return, step by step →

7. When a spouse is left

This is the hard one, and it is better heard now than at a graveside. Publication 517 says a minister’s surviving spouse cannot exclude the rental value unless it is for the spouse’s own ministerial services. Survivor payments from a church plan are generally taxable in full. Survivor-benefit treatment can be fact-specific and should be confirmed with the plan administrator and a qualified clergy tax professional.

Plan for that together. A surviving spouse’s income tax may rise just as income falls, and that belongs in your retirement and life-insurance planning now.

8. A checklist for the five years before you retire

1. List every retirement account you have and note which ones are church plans.
2. Ask each church plan, in writing, how it designates housing allowance for retirees and whether you must request it.
3. Before any rollover or consolidation, ask what happens to the housing allowance on that money.
4. Estimate your retirement housing costs honestly, especially if the mortgage will be paid off.
5. Know your home’s Fair Rental Value, so the third number is not a guess.
6. Talk with your spouse about survivor income and what will be taxable.
7. Keep tracking housing expenses after you retire. The records matter as much at seventy as they did at forty.

Disclaimer: This guide is general educational information for ministers of the gospel in the United States, current as of October 2026, based on IRS Publication 517 (2025) and published guidance from church plan administrators. Plans differ, and whether a particular account or payment can be designated is for your plan and your tax professional to confirm. This is not legal, tax, financial, investment or accounting advice, and reading it does not create any professional relationship. See IRS Publication 517, IRC §107, and Rev. Rul. 63-156 and 75-22.

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