Should Ministers Opt Out Of Social Security?
Dave Ramsey answers the top tax-related question pastors ask
Every day, pastors ask Dave questions that are specific to their financial options as professional ministers. Dave is not a C.P.A. or accountant, but he’s studied this stuff for years and has some strong opinions about being a good steward of the money God has entrusted you with. Just be sure to keep up with the facts yourself since tax laws are always changing, and go over the specifics of anything you do with a tax professional.
First Things First
You’re going to want to pick up a copy of Publication 517 from the IRS. This is the publication that specifically deals with “Social Security and other information for the members of the clergy and religious workers.” Yes, it’s a little bit like doing a Hebrew or Greek study, but it’s worth weeding through to get the answers, be on top of things, and be a good steward.
Yes, you can legally opt out of Social Security on religious grounds—you just have to have valid reasons. You can’t just say, “I want out because I want to do it myself.” You have to fill out a form (4361 Form), and state your specific biblical grounds for opting out. Just remember that this only applies to the income you receive as part of your vocational ministry.
If you are bi-vocational, you will still pay into Social Security on your secular income. You can opt out when it comes to your ministry salary and any extra self-employment income you receive through your ministerial duties, such as honorariums for a wedding or a funeral.
Advantages and Risks of Opting Out
If Dave were wearing your shoes, he’d opt out in a nanosecond. He believes that sending money to the Social Security office is bad stewardship. There are several advantages to opting out. It frees up more of your income so you can invest in your own retirement plan. Plus, it gives you the freedom to make your own biblically informed decision about how to manage that portion of your income.
Just be aware that if you don’t put any money into Social Security as you work, then you won’t be able to draw any money out when you retire. If you opt out, then you will receive zero Social Security or Medicare benefits from any ministerial income.
The bottom line is that this is a great opportunity for ministers. Yeah, you have to have a valid biblical reason for opting out of Social Security, but a little basic math will tell you why this is a great plan.
Things You Must Have If You Opt Out
If you are going to opt out, there are some things you must do for the rest of your life from a common sense perspective to make sure you and your family are taken care of. They are things you should be doing anyway, but you definitely should not opt out without having these things in place. Otherwise, you’re signing up for major risks that are just not worth taking.
- Term life insurance—You must have a level term policy that covers about 10 times your income. (That’s the average amount, but check with a professional who will take factors like age, income and specific aspects into consideration.) That way, if something happens to you, your family will be taken care of. If you die with children under 18, they would receive a Social Security check, so you’ve got to have a life insurance policy in place if you’re going to opt out, and you must keep it—period—because Social Security is not going to be there for your family to count on.
- Long-term disability insurance—If you become disabled and have opted out, you will not receive anything from the S.S.I. at all. Do not opt out without having a good long-term disability policy in place. Once you have it, keep it!
- Retirement savings – a 403(b) and Roth IRA—You will not be receiving a Social Security check at retirement if you opt out. So what?! If you take the thousands and thousands of dollars you’d be paying into Social Security and put that into a Roth IRA in a good growth stock mutual fund, you’ll retire with dignity times 20!
- Long-Term Care Insurance—Dave recommends long-term care insurance the day you turn 60. So if that’s you, add that to your list of must-have coverages!
If you’re willing to take responsibility for yourself by planning for retirement and having the proper insurance, you’ll experience the benefits of opting out of Social Security and eliminate the risks!
Dave has a network of trusted tax professionals called Endorsed Local Providers to help you with any tax-related issue you may encounter. Find one in your area now to save you heartache and money in the future!