Clergy Contemplating Social Security Opt Outs—Consider the Risks
Social Security has a special provision for certain ministers, members of religious orders (who take vows of poverty), and Christian Science practitioners that was created by Congress to honor sincerely held religious objections to social insurance. The provision allows these ministers to "opt out" of Social Security, provided they submit an IRS form, under penalty of perjury, stating that they are "conscientiously opposed to, or because of religious principles opposed to, the acceptance (for services performed as a minister) of any public insurance that makes payments in the event of death, disability, old age, or retirement; or that makes payments toward the cost of, or provides services for, medical care, including the benefits of any insurance system established by the Social Security Act".
While United Methodist clergy can apply for an exemption from Social Security taxes—they probably shouldn't. First, UMC beliefs tend not to support a conscientious objection. In fact, the UMC Social Principles and Book of Resolutions support public insurance systems like Social Security, Medicare and universal health coverage, and the Church's retirement and health plans are designed under the assumption that clergy will receive Social Security and Medicare benefits. Second, the decision to opt out can be financially disastrous, and once you make this decision, you cannot opt back in.
Opting out of Social Security impacts the following benefits:
|Medicare Clergy would be ineligible for Medicare. Medicare Part A, which covers hospital costs, ordinarily has no premium. If you opt out, you may need to purchase comparable health insurance. Opting out also typically negates the value of any retiree health care coverage that may be provided by your conference, since most programs are based on a retiree having Medicare for primary coverage.|
|Disability Social Security disability offers monthly income if you qualify due to catastrophic illness or injury. If you opt out, you may need to purchase a costly disability income insurance policy for comparable benefits. Even though the church provides disability benefits for eligible clergy through the Comprehensive Protection Plan (CPP), those benefits are reduced by the amount of benefits you would have received from Social Security had you not opted out.|
|Retirement benefits Some people worry about the dependability of Social Security. But, as we explained in "Is Social Security Safe," benefits will still be paid even if the trust runs out of money. The average Social Security benefit is $15,228 annually. You would need to save more than $300,000 to provide this same benefit over 20 years. If you live longer, you would need significantly more.|
|Survivor life insurance benefits CPP provides a death benefit to your spouse and dependents, but it doesn’t replace Social Security survivor benefits. If you opt out, you may need to purchase a potentially expensive life insurance policy to provide comparable benefits.|
So saving some taxes means taking on a lot of risk. And even if you opt out, you’d still need to pay Social Security taxes on income earned from secular employment. Before you make a permanent decision to opt out, speak to a professional who specializes in clergy tax issues and consider everything you'd be giving up.
More Information is Available
Considering the consequences, it's generally not a good idea to opt out of Social Security. Wespath recently presented a webinar to address questions about Social Security benefits. Here is a recording of the webinar.
Video: Fundamentals of Social Security Webinar
Recorded Tuesday, September 17, 2019
If you've already opted out and need help determining how much additional insurance and savings you need, contact EY Financial Planning Services or a tax professional. EY offers confidential consultations at no additional cost by calling 1-800-360-2539.* Financial planners are available business days from 8:00 a.m. to 7:00 p.m., Central time.
* Costs for these services are included in Wespath's operating expenses that are paid for by the funds. Services are available to active participants and surviving spouses with account balances, and to retired and terminated participants with account balances of at least $10,000.
From the October 2019 issue of Hark!