Farmers historically have struggled to invest money in anything other than their farm operation. However, by investing in retirement plans including an IRA, a farmer can more easily save up for retirement and make the transfer to the next generation much easier.
The power of compounding is the financial seventh wonder of the world. Based on your annual investment return, you can determine how quickly your investment will double by dividing it into 72. For example, if you average 3% on your money, it will take 24 years to double. However, if you can earn 8%, then it only takes nine years.
The younger you start to invest, even small sums, the more money you will have at retirement. Let’s compare the results of placing $10,000 into a retirement account at either age 20 or 40.
The farmer who does this at age 40 and then pulls the money out at age 70 will have $100,627. However, the farmer who starts at age 20 will have $469,016, and if they can earn 10%, will have $1,173,909.
The cost of maintaining a solo 401k plan is very inexpensive and married couples can set aside at least $14,000 into an IRA each year. The fees on those accounts are minimal and you can make sure to invest in low-cost ETFs or mutual funds. High-cost funds could quickly reduce your returns substantially.
Most of the earnings will result in the last 10 years, so the sooner you get started, the more funds you will accumulate.
Risk Protection Benefits
There’s another big reason to make this investment. Funds in a retirement plan are fully exempt from bankruptcy, and we all know farming can be a very risky business. The full exemption does not apply to IRAs, but the amount that is exempt is fairly large.
This amount gets updated every three years. On April 1, 2025, the exemption amount was raised from $1,512,350 to $1,711.975 through March 31, 2028.
Most farmers have IRAs less than this amount, so it’s likely they will have a full exclusion if bankruptcy was to occur. Amounts rolled over from a 401k plan or other retirement account, including earnings associated on that account, are fully exempt.
In some states, IRAs are fully exempt or at least partially exempt.
The bottom line is to invest in an IRA or retirement plan. I hope you never need the protection, but it is a good insurance policy.
