Should Churches use a SEP IRA?

Of the three main options available to most churches for establishing retirement plans for their pastors - SIMPLE IRA, 403(b), and SEP IRA - my favorite option is the SEP IRA. The most obvious difference between a SEP and either a SIMPLE or a 403(b) is that employees are not allowed to make contributions to a SEP. Only the employer can contribute.

In my experience, this isn’t an issue for most pastors since most pastors probably don’t have a ton of money to contribute out of their own budgets towards retirement anyway; and even if they do, they can usually still do so through making contributions to their own personal Traditional or Roth IRA.

The biggest thing I like about the SEP IRA is that the church can choose to contribute up to 25% of the pastor’s salary towards his retirement. As with SIMPLE plans, please note that this only applies to the pastor’s actual salary, not their total income. If a pastor has a total income of $50,000, but designates $25,000 of that as being housing allowance, the church can only contribute up to $6,250 ($25,000 x 25% = $6,250).

This provides both the pastor and the church with a multitude of options regarding how to best care for the pastor and his family.

As for what I don’t like about SEPs . . . yeah, I can’t think of anything. They’re easy to setup and operate. They provide a way for the church to be as generous as it can afford to be to all employees. There really is no downside that I can see.

Obviously, a lot more could be said about the intricacies of and requirements surrounding SEPs. As I have said in the past, I am not an accountant, tax professional, or certified financial planner, and you should definitely seek counsel from one or more of these individuals before deciding on which plan is best for you and your church.

For a nice overview of SEP IRAs, click here.

What do you think? Leave a comment below, or follow me on Facebook and leave a comment there.



Pastors are so good at so many difficult things - preaching/teaching, counseling, discipling, caring - but can very often be completely clueless when it comes to handling their money wisely. This can be true of their day-to-day finances, but is often more true in regards to their retirement planning.

The Pastor's Guide to Wise Investing takes the, often, confusing world of investing and makes it simple and easy to understand by compiling and condensing the best advice from the best investors of our day into one simple, easy-to-read guide.