Roth IRA vs. 403(b) for Ministers: Which Should You Prioritize?

Retirement planning for pastors involves more than just choosing an account type. With unique tax treatments, church-sponsored plans, and denominational resources, it's important to approach this decision with clarity and intentionality.

Making the right choice now can result in thousands of dollars in long-term tax savings and increased financial flexibility in retirement.

Step 1: Always Max Out the Church Match

If your church offers a 403(b) plan with matching contributions, your first priority should be to contribute enough to receive the full match. This is essentially free money.

• Example: If your church matches 100% of your contributions up to 5% of your salary, and you earn $90,000, that is $4,500 in employer contributions you do not want to leave on the table.

• Action: If your church has not established a 403(b), contact your denominational office or benefits board. Many denominations offer group 403(b) plans that can be set up easily through their retirement services teams. For example:

  • Assemblies of God pastors can explore AG Financial for retirement planning options.

  • Southern Baptist pastors can contact GuideStone Financial Resources for help setting up or managing a 403(b).

Step 2: Beyond the Match - Should You Prioritize Roth or 403(b)?

Once you have maxed out any match, the next step depends on your tax strategy, income level, and long-term goals.

Roth IRA: Tax-Free Growth and Flexible Access

• Pros:

  • Contributions grow tax-free.

  • Withdrawals in retirement are tax-free, if qualified. A qualified withdrawal means the Roth IRA has been open for at least five tax years and the account holder is age 59½ or older (or meets a specific IRS exception).

  • Contributions (not earnings) can be withdrawn anytime without penalty.

  • Greater flexibility and control over investment choices.

• Income Phase-Out:

  • In 2025, Roth IRA contributions phase out starting at $230,000 for married couples filing jointly.

  • If you exceed this, you may be eligible for a Backdoor Roth IRA.

403(b): Higher Contribution Limits with Pre-Tax or Roth Options

• Pros:

  • Annual contributions up to $23,000 (or $30,500 if over 50).

  • May offer Roth 403(b) option (check with your provider).

  • Pre-tax contributions reduce taxable income today.

  • Some plans offer denominationally screened investment options.

• Special Pastoral Benefit:

  • Ministers can designate distributions from a denominational 403(b) as housing allowance in retirement (tax-free within IRS limits).

Step 3: Strategic Prioritization

Here is a sample prioritization guide:

1. Max the Church Match in Your 403(b)

2. Contribute to a Roth IRA (or use Backdoor Roth if phased out)

3. Return to the 403(b) to contribute beyond the match if you still have capacity

Example Decision Tree:

• Do you get a church match? → Yes → Max it.

• Is your income below Roth IRA limit? → Yes → Fund Roth IRA.

• Already matched and maxed Roth? → Continue funding 403(b).

• Over Roth income limits? → Use Backdoor Roth strategy.

The Backdoor Roth for Pastors

If you earn too much to contribute directly to a Roth IRA, consider a Backdoor Roth IRA:

1. Contribute to a traditional IRA (non-deductible).

2. Immediately convert to a Roth IRA.

3. Be mindful of the pro-rata rule if you have other pre-tax IRA balances.

Pro Tip: This strategy is best done with professional guidance to avoid unintended tax consequences.

Do Not Go It Alone

Pastors face unique tax rules and retirement privileges. Consulting with a financial advisor who understands clergy compensation and denominational retirement structures can save you both money and headaches.

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.