Finance-Accounting

The Best Time to Start Your Retirement Plan

Mon, 09 Jun 2025 21:07:56 GMT

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.

How to Calculate Your Personal Inflation Rate

Mon, 24 Jul 2023 20:30:45 GMT

See how rising costs impact you and your family

Yes, inflation is at a 40-year high, but you might not be feeling its sharp bite. It all depends on where you spend your money.

The Consumer Price Index is a basket of thousands of goods and services. In March, it marked a nearly 8.5% jump from a year ago. Categories such as gasoline, food and housing are the biggest contributors to the increase.

To analyze inflation’s threat to your farm and family, calculate your personal inflation rate.

Determine your monthly expenses for the following categories: food and beverages, housing, clothing, transportation, medical care, recreation, education, communication and other goods and services. Include big-ticket items you pay once or twice a year, such as home insurance.
Subtract your monthly spending a year ago from your current monthly spending.
Divide that sum by your monthly spending from a year ago.

For instance, if your spending last month was $4,500, and a year ago it was $4,250, the difference is $250. Divide $250 by $4,250 and you land at a personal inflation rate of 5.9%.

MINIMIZE INFLATION IMPACTS

Inflation is a growing risk for your farm and family. “It is also largely out of your control,” says Brent Gloy, economist at Agriculture Economic Insights. “What you can do is recognize prices are heading up and plan for it.”

This inflation calculation can be an eye opener about your family living expenses. If tracking your expenses is intimidating, start small, encourages Alex White, farm and financial management instructor at Virginia Tech University. For one month, track all personal expenses on paper or with an electronic tool.

Once you have current data, he says, you can see if you need to reduce expenses or set some financial goals.

You Are What You Spend

Some products and services have seen dramatic jumps in price. Luckily, a 13% jump in cracker prices isn’t felt as sharply as the nearly 40% increase in gas prices. Here are inflation levels for a few categories.

(Farm Journal)

Read More

How to Anchor Your Farm’s Profits From Inflation’s Pull

John Phipps: The Inflation We Expect

3 Economic Forces to Watch that Will Impact Agriculture

Adios to the Ag Dollar: A Farmer’s Story on Inflation and Inputs

Is the Fed Behind the Curve in Battling Inflation?

Which Dairies will be the Most Profitable in 2022?

Sat, 15 Jan 2022 18:59:17 GMT

ZISK is the fastest growing App in the Dairy industry, now used by 2800 farms owning over 2.4 million cows. As a result, the data collected by Zisk represents a sample of a quarter of the U.S. herds, and a snapshot of the situation in the U.S. dairy market today. It can be downloaded for free and provides producers with profitability estimates for their farm, and projections of how those profits will change moving forward. The ease of use, and speed with which it calculates means that the average user visits the app 3.62 times per day, spending approximately 5.5 minutes working in the app daily.

ZISK has released a report projecting expected dairy farm profits 2022.

Some of the main regional findings:

The most profitable parts of the U.S. in 2020 will be the Northwest and Northeast, but smaller farms in those regions won’t participate in this success. On average farms with less than 250 cows will make just $125 to $170 per cow in 2020, while those with more than 1000 or 5000 cows will earn about three to five times that level.
The least profitable region is expected to be the Southwest, and farms below 250 cows are expected to lose money in 2022. The Southeast is close behind. In both cases farms between 250 -1000 cows will make about half the income per cow of their neighbors with over 1000 or 5000 cows.

Detailed regional analysis, state by state:

ZISK users in the Midwest expect to be profitable, with even the smaller farms expected to make money, but in this case farms over 1000 and 5000 cows will make 7 – 8 times the profit of the smaller farms. The most profitable ZISK farms will be in Missouri.
The Southwest region is one of the contrasts, with Oklahoma projecting the best profits and California not far behind. Arizona users of ZISK aren’t feeling the same love, and New Mexico and Kansas producers are also forecasting profits much below the nations average.
Northeast producers have very different expectations for 2022, with some projecting substantial losses and others very profitable years. Since more users of the ZISK App are present in New York and Pennsylvania these naturally are more representative of what is expected in 2022, with average profit projecting per cow at $480 and $518 respectively.
The Southeast is not expecting a good year in 2022, except for Florida. In fact, milk producers in five states, Mississippi, Arkansas, Louisiana, Tennessee, and Alabama, are projecting losses or marginal profits per cow, with Georgia, North Carolina and South Carolina well below the nations average returns.
The Northwest is expecting a banner year, with Washington leading the way. Idaho, Colorado, and Utah also expect strong years, with just Oregon below the U.S. average and Montana’s smaller herds perspectives aren’t so positive.

Overall, the ZISK report data shows that the nationwide move towards larger herd size is born out in terms of profitability.

ZISK’s data shows that farms with over 1000 cows will be considerably more profitable than those with less, and those with less than 250 cows project profits per cow that are five times lower than those with over 1000 cows. Surprisingly, even farms with 750-1000 cows expect to be substantially less profitable (25-30% lower) than the 1K+ club. That said, the report shows that for 2022 there will be little benefit to have 2500 cows, 5000 cows or more, with profits being actually slightly lower per cow on these farms. As every report shows larger size farms are the way of the future, and milk purchasers and processers are expecting the same, with those investing expecting economies of scale to be crucial, but for the moment the 1000 plus cow club is the one to be a part of.

HSAs Offer Health Care, Retirement Savings

Wed, 14 Apr 2021 15:39:17 GMT

Health insurance coverage and healthcare costs are among the greatest challenges for self-employed Americans, including farmers.

One avenue that provides for cost containment combined with the opportunity to save for the future is the Health Savings Account (HSA). “More people are becoming aware of HSAs and using them as a strategic approach to managing their healthcare,” said Nathan Link, Employee Benefits and Individual Health Specialist for PDCM Insurance, Waterloo, Iowa.

To qualify for an HSA, you need to carry a High Deductible Health Plan (HDHP). According to the IRS website , that’s a health insurance plan with a deductible of no less than $1,400 per person or $2,800 per family, with a maximum annual deductible and other out-of-pocket expenses (like co-pays) of $7,000 per person and $14,000 per family.

“HDHPs often have lower monthly premiums than traditional health insurance plans,” said Link. “Clients can save the difference into their own HSA account and use those funds to pay out-of-pocket expenses as needed. With traditional plans, you pay a higher cost whether you use the services or not. An HSA allows you to keep that money if you don’t have to use it.”

As a savings tool, HSAs offer a triple tax advantage*, in that:

Money deposited into an HSA is not taxed.
Account balances are allowed to grow tax-free; and
Funds can be withdrawn tax-free, provided they are used to pay for Qualified medical expenses , including those not covered by health insurance, like vision and dental care.

While your HDHP will be accessed through a private agent or the Healthcare.gov marketplace, you will have to open your HSA account separately through a financial institution. Many banks and credit unions offer them, and most provide options to invest your balance in stocks or mutual funds for larger growth opportunities.

Employers of a spouse working off the farm also may offer an HDHP/HSA package, in which case they likely will have the HSA structure already set up for the company’s employees.

HSAs are individual accounts. If you are married, the account is in one spouse’s name, but the fund can pay for expenses for your spouse and children covered on your health insurance policy. The annual contribution limit applies to the entire couple or family. In 2021, it is $3,600 per individual or $7,200 per family. That limit includes contributions that may be made by an employer.

If you will be 55 or older by the end of the tax year, you can contribute another $1,000 annually as a “catch up” contribution. If your spouse also is 55 or older, he or she can open a separate HSA and contribute another $1,000 to that account, according to OPTUMbank .

When you start using Medicare – typically around age 65 – you can no longer contribute to an HSA. But at this point you can continue to utilize the funds tax-free for medical expenses and/or your Medicare Part B or Part D premiums. You also have the option of using the money for any other purpose you please after 65. But those funds will be taxed as regular income, just like a traditional IRA.

“Before age 65, it’s never a great idea to use your HSA as an emergency fund for non-medical expenses,” advised Link. “You’ll be assessed a 20% penalty, plus the withdrawals will be taxed as income at your regular rate.”

You also cannot use your HSA funds to pay health insurance premiums before age 65. You can, however, tap them tax-free to pay premiums for long-term care insurance.

“If you can cash-flow your medical expenses and leave your HSA untouched, it will be a tremendous retirement savings vehicle thanks to its many tax-advantage features,” shared Link. “But even if you can’t, there is great peace of mind knowing that you have the funds set aside to cover medical expenses if you need them, and that you can maintain control of that money if you don’t.”

*There are exceptions to these exemptions in a few states. New Jersey and California assess tax on both your HSA contributions and they earnings they generate. Tennessee and New Hampshire tax earnings only.