Housing Allowance for IRA?
Hello,
A participant in a church plan earns $25k.
$20k is non-taxable housing allowance. Can this amount be used to qualify a Roth IRA contribution? Or would only the taxable portion of $5k be the amount of qualifying income for a Roth IRA?
If income is recognized as self-employment I think taxes apply to the housing allowance so would the full $25k count towards qualifying a Roth IRA?
Thank you.
Permalink Submitted by Alan - IRA critic on Thu, 2025-01-16 17:19
I think the answer lies in the determination of net earnings from SE per Sec 1402(8) in which earnings otherwise excluded from income tax are still treated as SE income while the minister is still working, but no longer treated as such after retirement.
Therefore, he should be able to use the excluded income in taxable comp for IRA contribution purposes until retirement, but not thereafter.
Permalink Submitted by Kevin O'Hearn on Fri, 2025-01-17 09:14
Thanks Alan. What if the income is paid as W2 wages, not SE income. I read that it is excluded from box 1 of W2, but maybe captured in box 14.
If not in box 1, would IRS not consider it earned income?
Permalink Submitted by Alan - IRA critic on Fri, 2025-01-17 22:02
They probably would not, because the list of taxable compensation for IRA contribution purposes in Pub 590 A lists non taxable combat pay, alimony, and fellowship payments as special inclusions, and the housing allowance would have also been listed if it was meant to be included as taxable comp. So we are back to W-2 box 1 less box 11 for taxable comp.
It does not make sense to have a different answer for wages than for SE income, therefore my prior analysis for self employed clergy is likely incorrect.
Pub 517 designed for the clergy does not even mention the housing allowance issue. I imagine that most of the clergy have taxable compensation that is enough to support IRA contributions, which would eliminate the need to use housing allowance dollars.