Tax day came and went yesterday. Woo-hoo! Oh, unless you are on extension, that is. Regardless, now is the time to make plans for next year. If you are a farmer or a rancher, then that mean looking into retirement saving solutions.
Well, it seems that regardless of your "form of ownership," you may be considered a business eligible to establish a retirement plan.
A recent article in The (Great Falls MT) Prairie Star,, titled “Review estate, tax and retirement planning issues now,” notes that a farm or ranch operation should include retirement savings for the owner and/or employees as a part of annual budgeting.
These retirement funds provide tax savings now and may provide liquidity and income when the decisions for retirement and/or farm transition take place.
Two options are discussed are SEPs and IRAs. Contributions to these plans will provide tax savings for the taxpayer every year they are made and both have flexibility. In other words, annual contributions are not mandatory.
Small businesses, including self-employed taxpayers, have two choices after the end of the year to establish and contribute to a retirement plan.
These two choices are the Simplified Employee Pension (SEP) plan and the individual retirement arrangement (IRA).
A taxpayer has until the due date of the business federal tax return (including extensions) to set up and fund a SEP. On the other hand, IRAs cannot be funded after the due date of the taxpayer’s personal federal income tax return.
The SEP allows self-employed individuals to contribute and deduct 20% of the net income up to a max of $52,000 for 2014 ($53,000 for 2015).
If the owner is contributing for an employee, the percentage is maxed out at 25% of the employee’s gross income—up to $52,000 in 2014 and $53,000 in 2015.
IRA contributions are the lesser of $5,500 or 100% of earned income for 2014 (the same in 2015). IRAs also have a “catch up” provision for individuals age 50 or older to contribute an extra $1,000 each year for 2014 and 2015.
The original article recommends that before you contribute to a traditional IRA, you should see if those contributions are deductible. If not, you might look at a Roth IRA.
Although the required minimum distribution (RMD) rules apply to both SEPs and IRAs after taxpayers reach age 70½, the SEP permits contributions to continue as long as the taxpayer has income.
As far as the traditional IRA, contributions cannot be made after age 70½, regardless of income.
As you can see, each of these retirement alternatives offers both advantages and disadvantages to a taxpayer. Since each has some unique conditions and regulations, so it is essential that you work with an experienced estate planning attorney to explore your options.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.
Reference: The (Great Falls MT) Prairie Star (April 1, 2015) “Review estate, tax and retirement planning issues now”