Avoid Tax by Contributing to a Church Retirement Account
By Dave Gemmell
A survey of Adventist Pastors revealed eight different factors that may allow pastors to retire as millionaires.1 Over the next few weeks I’ll be sharing each of these factors in bite size pieces. Coming in at number eight in correlation strength is ‘Those whose net worth is anticipated to be over one million contribute more to a church sponsored retirement account than those whose net worth was less than a million (see bar graph). A greater contribution to NAD Retirement2 could likely lead to a higher net worth.
Participants were asked if they contributed ‘More than Matching’, ‘Equal to Matching’, or ‘Less than Matching’. It is obvious that those who contribute more than matching are at an advantage and those who contribute less than maximum matching are at a disadvantage. What Is not so obvious is the reason why this factor is so powerful. Contributing to NAD Retirement is turbocharged because of the tax advantages exclusive to pastors. Here’s how it works:
First, a contribution to NAD Retirement is excluded from income tax. For the year 2023 you can contribute up to $22,5003 of your income to your retirement fund.
Second, your money in NAD Retirement grows tax free. No income tax. No capital gains tax. This is a huge advantage when compared to other investments that are constantly dragged down by taxes.
Third, and here’s the secret that many don’t know about; when you retire, you can gradually take your money out of your retirement tax free because it qualifies as parsonage exclusion.4 The caveat is that you will most likely forfeit parsonage exclusion if you move it out of NAD Retirement to another service.
As pastors we need every break we can get, and this is a huge one that many don’t take advantage of.
Author’s note: These articles are condensed from the full report of the study that was presented at the 2022 CALLED Pastors’ Family Convention and can be downloaded here: If you would like to dialogue with the author you can email him at davegemmell@gmail.com.
Dave Gemmell recently retired from NAD Ministerial and is enjoying spending more time with his family, especially his three grandsons.
Footnotes:
1 A million dollars may sound like a lot of money, but it still needs to be managed carefully to completely last through the retirement years. https://www.gobankingrates.com/retirement/planning/how-long-one-million-retirement-lasts-us-cities/
2 This part of the study focused on pastors who participated in the NAD Retirement Account. For those in Bermuda, Canada, or on the Regional Retirement plan, check with your plan administrator for tax benefits that may apply to your plan.
3https://www.irs.gov/newsroom/taxpayers-should-review-the-401k-and-ira-limit-increases-for-2023
4 “A 1099-R is issued with box 2b marked as “Taxable amount not determined” allowing you to determine and justify (if challenged by the IRS) the taxability of the distributions…Since the Adventist Retirement Board is the one designating your retirement benefits as eligible for parsonage allowance exclusion, your eligibility for exclusion is ONLY good through a Ministerial Credential, Commissioned Minister Credential, or Ministerial License.” NAD Retirement Reflections, May 2018.