5 Retirement Plan Options for Farmers

FBN Network

Nov 02, 2023

Farmers often have complex financial and tax situations that require thoughtful consideration as retirement or succession planning approaches. Retirement may affect a farmer’s personal finances as well as the family business’ finances and estate planning. 

Diversifying the investment portfolio can help reduce risk in retirement and address some of the unique challenges that farmers face when they retire.   

Why Should Farmers Plan for Retirement?

Retirement planning may be something farmers don’t think about often, but planning ahead is a critical step in preserving the assets accumulated over the working years. Many farmers may invest surplus funds back into their business instead of saving for retirement, hoping the farm will provide adequate retirement income. 

However, holding wealth solely in farm assets can add financial risk and vulnerability to dynamic economic conditions, especially during poor market years

Retirement planning is also helpful in equalizing assets between heirs and providing liquidity in retirement. Proper planning, with the help of a trusted financial advisor, can also help maximize tax benefits on retirement savings – another benefit that is especially advantageous in high-income years.

[RELATED: Do You Have Enough Working Capital?]

Retirement Plans for Farmers

According to a USDA Economic Research Service report, only 40% of farm households participate in some type of retirement account, compared with 60% of all U.S. households. 

While there may be many reasons for this discrepancy, one possibility is that farmers may not qualify for some of the retirement options that traditional W-2 workers are eligible for, or there may be restrictions that limit the practicality of those programs for farmers. 

However, investing in the right retirement plan can help diversify a farmer’s financial portfolio and manage the tax implications associated with retirement. 

Here are a few popular retirement plan options farmers may consider.  

Roth or Traditional IRA

Individual retirement accounts (IRAs) are one of the most straightforward retirement plan options for farmers. There are two basic types of IRAs: 

  • Traditional 

  • Roth

For 2023, the maximum contribution limit across all IRA accounts is $6,500, or $7,500 for those over 50.  

The most significant difference between a Roth IRA and a traditional IRA is the tax implications. 

Contributions to a traditional IRA may be fully or partially tax-deductible, depending on a participant’s filing status and income. Generally, funds held in traditional IRAs are only taxed once withdrawn. At age 73, a minimum distribution is required based on the account balance and the participant’s life expectancy as defined by the IRS.  

Distributions to a Roth IRA are not tax-deductible; however, the distribution is tax-free if the Roth is held longer than five years and the funder is over 59½ years old. There is no required minimum distribution for a Roth IRA, but Roth beneficiaries may be required to make a minimum distribution to avoid penalties.

[RELATED: What Income Should You Show to Help Ensure You Can Refinance?]


A simplified employee pension (SEP) plan allows self-employed farmers to invest 25% of their net earnings, up to $66,000 in 2023, for retirement. 

One benefit of the SEP over traditional or Roth IRAs is the large contribution amount, which can help lower taxes in higher-income years. They also tend to have low administrative costs and have no annual IRS filing requirements.  

If you have eligible employees, you must contribute the same percentage to their SEP account as you do for your own. For example, if you contributed 20% of net earnings to your SEP, you must contribute 20% of wages to each eligible employee’s SEP as well.

Solo 401(k)

A solo 401(k) is a traditional 401(k) plan that covers a business owner (plus his or her spouse) with no employees. These plans have the same rules and requirements as any other 401(k) plan and can be set up as traditional (tax-deferred) or Roth. Total contributions to a participant’s account, not counting catch-up contributions for those age 50 and over, cannot exceed $66,000 in 2023.

A solo 401(k) plan participant must file an annual report with the IRS if the account has $250,000 or more in assets at the end of the year. The solo 401(k) offers two benefits that a SEP doesn’t: the ability to borrow from the account and the addition of “catch-up” contributions for those over 50. 

Defined Benefit Pension 

Defined benefit pension plans differ from IRAs, SEPs, and solo 401(k)s in that allowable contribution amounts are based on a participant’s: 

  • Age

  • Income

  • Planned retirement age 

  • Additional personal factors

An actuary can determine contribution amounts, which are generally much larger than other retirement plan options. The plan must be in place and funded for three years, and eligible employees must participate.

Defined benefit pensions can significantly reduce taxable income and help keep farmers from moving into higher tax brackets. They can also help equalize the estate by transferring assets to non-farming beneficiaries upon death. 

While defined benefit pensions aren’t necessarily a good fit for every farmer, they could be a good option if you:

  • Are close to retirement age

  • Do not have employees

  • Need to trim your tax bill while amping up savings.

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Fund Your Operation’s Future Growth with FBN® Finance

There’s no one-size-fits-all retirement plan for farmers, but a trusted financial advisor can help build a customized financial planning strategy. 

They’ll likely tell you that the key to successful retirement planning is to start early; proactively reviewing and prioritizing your operation’s finances today can benefit your overall financial position tomorrow and beyond. 

When you’re ready to invest in your operation’s future growth to benefit your farm over the long-term, connect with the team at FBN Finance. We’re here to support farmers in various ways at any stage of their operational management lifespan to help meet both short-term and long-term financial goals. 

From land loans to flexible input and operating lines to even equipment loans, the FBN Finance team is ready to help position farmers for success today and into the future.  

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The material provided is for information purposes only. It is not intended to be a substitute for specific legal, consulting or any other professional advice. Neither Farmer’s Business Network, Inc. nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in the material and any liability therefore is expressly disclaimed. The information and opinions expressed by others in this material are their own and are not endorsed or approved by FBN or its affiliates.

FBN Network

Nov 02, 2023

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