Read the Fine Print: What Pastors Need to Know Before Rolling Over Their 403(b)
Before you move your retirement money, ask these questions.
The Conversation That Raises Red Flags
It usually starts with something that sounds helpful:
“Let’s move your old 403(b) into an IRA where I can help you manage it better.”
Maybe it’s your new financial advisor. Maybe it’s someone who found out you’re retiring. Maybe it’s a well-meaning friend from church who recently got licensed to sell investments.
They’re offering to help. But before you say yes, there’s something every pastor needs to understand.
Rolling money out of your church-sponsored 403(b) could permanently reduce your housing allowance tax benefit in retirement and cost you thousands in avoidable fees. And once it’s done, it’s hard or impossible to reverse.
Why This Matters for Pastors
As a pastor, your 403(b) isn’t just a retirement account. It’s one of the few financial tools designed specifically for ministers. In retirement, distributions from a church retirement plan can be designated as housing allowance, which may allow that portion of your income to be federally tax-free.
That benefit is unique. And it’s powerful.
But if you roll your 403(b) into a traditional IRA, you may lose that benefit permanently. The IRS does not allow housing allowance designations from IRAs or most brokerage accounts. Only qualifying church retirement plans, such as those administered by denominational boards or recognized ministry organizations, can offer this.
Most pastors don’t realize that until it’s too late. And many financial advisors don’t bring it up at all.
Questions Every Pastor Should Ask Before a Rollover
Before making any changes to your retirement accounts, take time to ask the following questions:
Is this advisor charging a fee, or earning a commission?
Some advisors charge a flat annual fee based on assets under management (AUM). Others receive a commission when you move your money into certain mutual funds, annuities, or brokerage accounts. In many cases, the advisor is not required to act as a fiduciary and may not disclose all costs unless you ask directly.
If someone says, “There’s no cost to you,” that’s often a red flag. Either you are paying a recurring fee, or they are being paid by the product provider. Both deserve clarity.
Do they understand clergy tax rules?
Most financial advisors are not trained in the unique tax situations of ministers. Ask them if they understand dual tax status, SECA, and the housing allowance exclusion in retirement. If they can’t explain those clearly, they are not the right person to help you make this decision.
Will your funds still qualify for housing allowance after the move?
Church-based 403(b) plans, such as those from AG Financial, GuideStone, Wespath, or other denominational boards, are structured to continue housing allowance treatment in retirement. Rolling your money into an IRA or retail brokerage account almost always eliminates that benefit.
When a 403(b) Rollover Might Still Make Sense
Not every rollover is harmful. In some cases, moving part of your funds may align with your financial goals.
For example:
You’ve already retired and do not need the housing allowance benefit for certain funds.
You want to consolidate multiple accounts and streamline management.
You are working with a fiduciary financial planner who has clearly explained the benefits, drawbacks, and long-term impact of a partial rollover.
You want to move some funds into an IRA for investment flexibility, while leaving the rest in a denominational 403(b) to preserve the housing allowance benefit.
The key is informed strategy, not reaction.
What Most Pastors Miss
Many pastors assume:
“My advisor knows what’s best.”
“It’s all retirement money, so it doesn’t really matter where it sits.”
“If I ever need the housing allowance, I’ll figure it out later.”
But the truth is that rolling your entire 403(b) into an IRA can eliminate one of the most powerful tools available to retired ministers.
Others don’t realize the long-term cost of advisor fees. A 1 percent assets-under-management fee on a $500,000 account equals $5,000 per year. And as that account grows, the fee grows with it. If the advisor is offering ongoing planning, retirement distribution strategy, and clergy-specific expertise, it may be worth it.
But in many cases, those accounts are simply placed in index funds and rebalanced quarterly. That can be a smart long-term strategy, but if that’s all that’s happening, it’s worth asking whether it justifies a 1 percent fee every year.
That’s a deeper conversation and one worth having. But it starts with knowing what you're paying and what you're getting.
In most cases, these missteps happen not because pastors were reckless, but because no one explained the full picture.
A Better Path Forward
If you’re considering rolling over your church retirement plan, here are five steps you can take today:
Pause before moving any funds
A rollover is not always reversible. Take time to gather all the facts.Ask detailed questions about fees
How is your advisor paid? What are the ongoing expenses of the investment options? Insist on written disclosures.Protect your housing allowance
Keep part or all of your funds in a qualified denominational 403(b) plan to preserve the housing allowance exclusion in retirement.Document everything
Request all designations, recommendations, and plan documents in writing.Work with someone who knows pastor finance
Your calling is unique. So is your tax situation. Look for a fiduciary who specializes in clergy retirement planning, not just generic investment advice.
Pastoral Stewardship Includes Financial Discernment
Proverbs 14:8 says, "The wisdom of the prudent is to give thought to their ways."
Rolling over your 403(b) is not just a financial transaction. It is a stewardship decision. It could impact your retirement income, tax exposure, and the benefits available to you after a lifetime of ministry.
So take your time. Ask hard questions. Get trusted guidance.
And read the fine print.
I’m grateful for the chance to share financial education here on Pastoral Finance. My heart is to help pastors and their families make wise decisions with clarity and confidence, especially in seasons of change.
While these blog posts are here to equip as many as possible, I also work closely with a small number of pastoral families each year through a more personal, ongoing planning relationship. With more than two decades of experience in ministry and finance, I understand firsthand how things like taxes, retirement income, housing allowance, and giving strategies can be confusing but they don’t have to be.
Comprehensive financial planning isn’t just about numbers. It’s about aligning your financial life with your calling, your values, and the future you feel led to build. If you’ve ever wondered what it might look like to have someone walk with you through those decisions, that’s exactly what Legacy Path Advisors was built for.
Disclaimer: This post is for educational purposes only and should not be considered legal, tax, or investment advice. Always consult a qualified tax professional and financial advisor familiar with minister-specific planning before making changes to your retirement accounts.
