We've talked plenty about how important it is to have a retirement income plan for a successful legacy plan. This time of year, remember that something as simple as an Individual Retirement Account can be an important part of your farm legacy transfer plan.
If the farm business is to move to a new generation, we need a way for the current generation to meet their living expenses without placing a burden on the farm business. One great tool for this goal is in individual retirement account.
IRS regulations allow for an annual IRA contribution of $5,500 or 100% of your earned income each year. If you are better than 50 years old the amount is $6,500. A married couple can contribute to an IRA for both spouses even if only one spouse reports earned income. The total IRA contributions must be less than the earned income reported on the tax return.
And one of my favorite IRS rules states that you can still fund a 2014 self-directed IRA until April 15, 2015. So, you still have time to meet your 2014 IRA goal.
To some, a contribution of $11,000 for a couple under age 50 or $13,000 for a couple better than age 50 does not seem like much, but it can really add up over time.
For example, if a couple aged 50 each started an IRA this year and each funded it for 20 years, they could accumulate as much as $500,000. (Assuming maximum contributions every year and 6.5% average account growth.) That amount could make a real difference in retirement.
Funding your IRA for 2014 is something you can do today. It's pretty simple and it will help move toward your farm legacy transition goal.
If this blog has got you thinking about your own situation, get in touch with my office ([email protected]).
The opinions of Rich Dunn are not necessarily those of Farm Futures or the Penton Farm Progress Group.