The Retirement Mistake Most Pastors Don’t See Coming
Pastor John has preached faithfully for 30 years, saved into his church’s 403(b), and built up a modest Roth IRA. He also expects Social Security. When retirement comes, he remembers hearing that “Roth money is tax-free,” so he begins drawing from his Roth IRA first.
Two years later, he is surprised to find his retirement income is not working the way he expected. His tax picture is more complicated than he thought it would be. He has missed out on the housing allowance benefit that could have sheltered his 403(b) withdrawals from federal income tax. And by waiting too long to touch his 403(b), his required minimum distributions are now larger than he wants, forcing him to take more than he needs.
John did not do anything reckless. He followed advice that often works for other retirees. But pastors live in a very different corner of the tax code, and what looks obvious can sometimes create problems.
Why Pastors Face a Unique Challenge
Most retirement planning articles are written with traditional careers in mind. Pastors face unique rules that make withdrawal decisions more complex.
Withdrawals from a denominational or church 403(b) can often be designated as housing allowance, which may exclude some or all of those funds from federal income tax.
Roth IRAs are tax-free and do not have required minimum distributions, which makes them valuable for flexibility in later years. Spending them too soon can limit future options.
Beginning at age 73, the IRS requires withdrawals from most pre-tax retirement accounts. If you have delayed too long, those required withdrawals can be larger than expected.
Depending on your other income, up to 85 percent of Social Security benefits may be taxable. Withdrawal timing affects this calculation.
The Real Mistake
The mistake many pastors make is not simply choosing Roth or 403(b) first. The mistake is assuming the order does not matter.
For some, starting with Roth money may drain the very account that could have provided flexibility later. For others, delaying 403(b) withdrawals too long may reduce the benefit of housing allowance or create large required distributions down the road. And for every pastor, the mix of accounts, housing expenses, and ministry history makes the best approach unique.
How to Begin Thinking About Your Plan
There is no single formula for everyone, but here are a few questions that can help you begin the process:
Has your church or denomination confirmed that your retirement 403(b) distributions will qualify for housing allowance?
Do you know how much of your Social Security may be taxable once other retirement income is included?
Have you looked ahead to estimate the size of your required minimum distributions at age 73?
Do you have a sense of how long you want to preserve your Roth IRA for future flexibility?
Simply asking these questions puts you ahead of most pastors. They are reminders that retirement withdrawals should be intentional, not automatic.
Why It Matters
The order of withdrawals can affect your taxes, your housing allowance benefits, and the long-term sustainability of your savings. Two pastors with the same account balances could face very different outcomes depending on how they structure their income. That is why this is not an area where generic advice works.
“Be diligent to know the state of your flocks, and attend to your herds; for riches are not forever, nor does a crown endure to all generations.” — Proverbs 27:23–24
Wise stewardship means more than saving. It means understanding how and when to use what God has entrusted to you.
Pastors who take time to think through their withdrawal plan can protect their income, reduce stress, and free themselves to focus on what matters most: their calling, their family, and the ministry God has entrusted to them. The best step forward is to connect with a financial advisor who truly understands the nuances of clergy compensation and retirement planning.
Disclaimer: This post is for educational purposes only and should not be considered tax, legal, or investment advice. Each pastor’s situation is unique. Consult a qualified fiduciary financial planner or tax professional before making retirement decisions.
