Family farmers and ranch owners have traditionally counted on the value of their land to fund their retirement. But increasingly, we’re seeing more farmers and ranchers, especially younger ones, fund retirement accounts.
There are plenty of reasons for you—and your business—to use employer-sponsored retirement accounts as part of an overall benefit package, according to my colleague, Shane Bell. He’s a principal with K·Coe Wealth and has 25 years of investment experience. Among those considerations:
• Employee recruitment, retention and reward are three good reasons why including retirement account options as part of an overall benefits package is a smart move for your business. “A lot of times people tell me they’re trying to recruit new employees but find they’re struggling to compete against other farms with benefits,” Bell says. “Offering a retirement benefit can be a recruitment tool for prospective employees. It can also be a way to reward longer-term employees, apart from bonuses, and help them save for retirement.” Moreover, there are retirement account options that allow you, as the business owner, to participate as well.
• Retirement accounts can ease the cash-flow needs during transition of farming operations by providing income independent of the farming operation, lessening the burden on the farm to provide retirement income. For example, when you transition farm operations to the next generation, debt is often incurred, which requires cash flow from farm operations to service. Cash flow from farming can be unpredictable, so in difficult years, retirement accounts can provide an independent source of income, easing the cash burden on the farm.
• Retirement accounts can provide tax benefits while enabling you to grow your personal net worth in other asset classes beyond land ownership. The tax benefits vary depending on the type of retirement account, but two tax benefits can be tax-deferred growth and the deductibility of contributions.
• Some states and cities are starting to mandate that a retirement account be offered if you employ a certain number of employees. In other words, you can choose your own retirement offering or you can use the state or city plan.
Retirement account decisions
How much should you put into a retirement account? “There’s no magic amount,” Bell says. “It’s a personal budgetary decision. If you’re raising kids or sending them to college, that will obviously eat into your available funds. The earlier you can start and the more you can contribute provide a greater potential for significant account balances.”
It’s also important to remember that monies contributed to a retirement account are earmarked for just that: retirement. If you need to withdraw funds before you turn 59 1/2 years old, there may be penalties in addition to taxes owed based on the amount you withdraw. Depending on the retirement account, you may also have to take minimum distributions beginning at age 72, which is a recent change from 70 1/2 years old.
If you’re going to set up a retirement account, talk to a professional who can guide you through an investment strategy and ensure your funds are invested and administered correctly.
“Every plan is very individualized and designed with different wants and needs,” Bell says. “Make sure you understand how the retirement account impacts your personal portfolio and organization.”
Editor’s note: Maxson Irsik, a certified public accountant, advises owners of professionally managed agribusinesses and family-owned ranches on ways to achieve their goals. Whether an owner’s goal is to expand and grow the business, discover and leverage core competencies, or protect the current owners’ legacy through careful structuring and estate planning, Max applies his experience working on and running his own family’s farm to find innovative ways to make it a reality. Contact him at email@example.com