of Kennedy & Coe
In the March 2009 issue of Top Producer, tax consultant Lance Fulton with Kennedy & Coe offered a unique plan for building a retirement fund with grain while also reducing the burden of paying self-employment tax on that grain in the article Pay Less at Tax Time
What a hot topic! Top Producer has been flooded almost daily with farmer questions and pleas for more information on this tax technique and retirement funding plan.
So we decided to share some of the reader questions we received, along with Fulton's answers and suggestions.
Q. How do you fund IRA accounts up to $250,000 per person?
The basic process is this: Your farm operation is converted into an entity that employees you and/or your spouse. The grain is sold by this entity and is used to fund a retirement plan.
Typically we use a defined benefit plan. This is a plan that determines contributions based on current and past earnings, age and date of retirement. These are all important factors in determining the amount that goes into the plan. I have seen amounts from $35,000 to $250,000 per year - again, depending on the factors above.
The entity used is one in which self-employment tax is not paid, thus the grain does
not get charged self-employment tax and the deferral is funded into the retirement
plan, which moves the equity out of the entity and into your name.
The plans are usually funded over a five-year period. The goal is for the entity to have no equity at the end and it all to have been placed into the retirement plan which is then converted into an IRA and follows all the IRA rules from that point forward.
Q. Which type of retirement plans allow funding up to $250,000 per person?
At Kennedy & Coe we use a variety of different types of plans. They vary based on number of employees and willingness to allow the employees to participate, age,
timeframe to retirement and several other considerations.
The usual choices are:
* Defined Benefit Plan
* Defined Contribution Plan
- SPRING 2009