A financial plan is a snapshot and roadmap of your current and future economic life. If done correctly, it can reveal if you’re on target to meet certain goals, or if you have fallen short.
Financial plans typically address issues such as current net worth, retirement savings, estate planning, tax reduction strategy, cash flow analysis, and more. While many people think they already know these variables in their life, sitting down with a professional financial advisor might reveal things they didn’t take into consideration as well as strategies for improving their financial situation.
Because agricultural families usually don’t have an employer’s pension plan or 401(k) to fall back on, it is especially important for them to do an adequate preparation to ensure they will have enough to retire on.
Waiting a few years before retirement to seek out the help of an expert may be too late. To avoid any disasters, every family in agribusiness should sit down with a competent financial advisor and develop a picture of their economic situation and a plan for achieving their financial goals.
Most agricultural families have little in retirement savings when they reach retirement because they invest most of their profit each year back into their business. Because it’s easy to find ways to reduce their annual taxable income, they also have small social security benefits when they reach their 60s. Therefore, it is critical they set up their own retirement plan as early as possible.
Building adequate retirement resources while still working is essential for farm owners. An Individual Retirement Account (IRA) for each spouse is a good place to start.
An IRA can be opened with a small deposit. Current regulations allow annual deposits up to $6,000 per year, or $7,000 for individuals over the age of 50. A Traditional account provides a tax deduction for contributions. A Roth does not, but withdrawals during retirement are tax free, and the plan’s assets may be passed onto heirs without a dime going to Uncle Sam.
A 401(k), SEP IRA, and SIMPLE IRA are referred to as employer sponsored plans and offer higher contribution limits. Depending on the amount of one’s adjustable income each year, it may be possible to contribute to an IRA and to an employer-sponsored plan.
Developing a succession plan for a farm or a plan for the future sale of one’s property is especially important. Without a solid succession plan in place, a family may not be able to meet the financial needs of the parents and their children. Likewise, without a solid plan for selling your property and investing the sale proceeds, you may pay excessive taxes and not generate sufficient retirement income. — Chris Nolt, WLJ correspondent
(Chris Nolt is the owner of Solid Rock Wealth Management, Inc. and works with families who are selling a farm or ranch and transitioning into retirement. For more information, call 800-517-1031 or visit: www.solidrockwealth.com.)