Here are my limited presuppositions about choosing an account:
The order in which a person should chose retirement investment accounts is as follows: (1) 401(k) or 403(b) to employer match, (2) Roth (or traditional) IRA to max, (3) 401(k) or 403(b) beyond employer match to max.
Here's my situation:
My employer does not offer a match. However, I am a member of the clergy. This has several tax implications that may amend my above presuppositions about choosing a retirement investing account.
1. As a minister, I am regarded as an employee for income tax purposes. However, the IRS specifically excludes ministers from the usual withholding or social security tax rules applicable to employees. As a result, with respect to Social Security, I am self-employed and pay self-employment tax on 100% of the money I earn. That said, on my income taxes, I am allowed to deduct my housing expenses.
2. In researching my investment options as a minister—403(b), Traditional IRA, and Roth IRA—I discovered the following:
So, I do not pay SE tax on 403(b) contributions, and I have read that I will not need to pay SE tax on 403(b) distributions:You pay self-employment tax on contributions you make to a traditional IRA. You pay federal income tax on distributions.You pay self-employment tax and federal income tax on contributions you make to a Roth IRA.You never pay taxes on 403-b contributions. You pay no taxes on 403-b distributions that are used for housing expenses. You only pay federal income taxes on 403-b distributions which are NOT used for housing expenses.
http://ssfoundation.net/pastors/?qa_faq ... sus-an-ira
Not paying self-employment tax on my retirement savings seems to significantly advantage contributing to a 403(b) over the other options available?Must ministers pay Social Security Tax on 403(b) distributions if continuing in ministry?
Do ministers have to pay Social Security tax on 403(b) retirement distributions or contributions? Some have mistakenly believed that clergy who receive retirement benefits but continue their service in the ministry will have to pay self-employment taxes on their retirement benefits designated as housing. Ministers Simply DO NOT. If you are a minister and have been told that you must include this on your schedule SE, it is incorrect advice.
http://www.clergysupport.com/important- ... urity-tax/
I have two questions:
1. Have I missed anything in my analysis?
2. What factors might mitigate the advantage of not paying SE tax when contributing to a 403(b) and motivate me to use either a Roth or Traditional IRA?
Thanks for your continued help