For most ministers and church employees, the limit on annual additions is
figured without any changes. This means that if you are a minister or
church employee, your limit on annual additions generally is the lesser
of:
 | $ 40,000, ( $41,000 for 2004), or |
| Your includible compensation for your most recent year of service.
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Although, in general, the same limit applies, church employees can
choose an alternative limit and there are changes in how
church employees, foreign missionaries, and self-employed ministers figure
includible compensation for the most recent year of service.
Who is a church employee? A church employee is anyone who is an
employee of a church or a convention or association of churches, including
an employee of a tax-exempt organization controlled by or associated with
a convention or association of churches.
Alternative Limit for Church Employees
If you are a church employee, you can choose to use $10,000 a year as
your limit on annual additions.
Total contributions over your lifetime under this choice cannot be more
than $40,000.
Changes to Includible Compensation for Most Recent Year of Service
There are two types of changes in determining includible compensation
for the most recent year of service. They are:
| Changes in how the includible compensation of foreign missionaries
and self-employed ministers is figured, and |
| A change to the years that are counted when figuring the most recent
year of service for church employees and self-employed ministers. |
Changes to Includible Compensation
Includible compensation is figured differently for
foreign missionaries and self-employed ministers.
Foreign missionary. If you are a foreign missionary, your
includible compensation does not include contributions made by the church
during the year to your 403(b) account.
If you are a foreign missionary, contributions to your 403(b) account
will not be treated as exceeding the limit on annual additions if the
contributions are not more than the greater of:
| $3,000, or |
| 100% of your includible compensation. |
You are a foreign missionary if you are either a layperson or a duly
ordained, commissioned, or licensed minister of a church and you meet both
of the following requirements.
| You are an employee of a church or convention or association of
churches. |
| You are performing services for the church outside the United
States. |
Self-employed minister. If you are a
self-employed minister, you are treated as an employee of a tax-exempt
organization that is a qualified employer. Your includible
compensation is your net earnings from your ministry minus the
contributions made to the retirement plan on your behalf and the deduction
for one-half of the self-employment tax.
Changes to Years of Service
Generally, only service with the employer who
maintains your 403(b) account can be counted when figuring your limit on
annual additions.
Church employees. If you are a church employee, treat all of
your years of service as an employee of a church or a convention or
association of churches as years of service with one employer.
Self-employed minister. If you are a self-employed minister,
your years of service include full and part years during which you were
self-employed.
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