Foster: Contribute to your IRA

Dennis Foster Special to the Farm Forum
Farm Forum

As we enter the new year, the task that most of you are dealing with is, unfortunately, taxes. Due to frustratingly low commodities prices and expenses that never seem to decrease no matter what you get paid, deductions may not be as big a concern for you as in years past. That being said, I would not forgo contributing to an IRA.

Many of you do contribute each and every year on a nearly automatic basis. That is to be commended as consistency does indeed pay over the long run. It is also a good idea to take just a few of the many dollars you as a producer briefly handle and put them to work for yourself long-term. Everybody else is getting paid. You had just as well get paid, too. It simply does not hurt to have a nest egg built for yourself that is totally separate from the farm and its inherent financial peaks and valleys. Do not hesitate to make your contribution as this is a quite small investment as compared to the much larger checks you write on a daily basis to meet all of the various farm expenses.

Finding the best place in which to place these contributions poses on ongoing dilemma for a lot of folks. Safety generally equates with low returns, and high returns are burdened with moderate to heavy risk. CDs and traditional fixed annuity rates are very low right now. Not all bad as that also means your financing costs are low, as well. But, there are ways in which to earn a reasonable rate of return and not put your IRA contributions at risk of loss. In my opinion, it makes little sense that once you manage to pull a few bucks off the farming roulette wheel to just turn around and toss them into another crap shoot. Meaning direct investment in the market.

As of this writing, the markets are continuing to fly high. Which is all good and fine. But, what happens when they make a correction? They always do. Skip all the fancy analyst smart talk and just consider history. That is just part of the game. And, with all the turmoil of domestic politics, the ever-present threat of terrorism and some very unsavory characters rattling their sabers and hell bent on the destruction of the United States, the odds of a downturn dramatically rise. So, safe doesn’t net much and what has the potential for gain can be dangerous. There are other options that are not widely known as they do not offer much incentive for financial advisors to recommend them.

Done properly, you can invest your money so it will not face risk and earn a decent rate of return. I have been talking and writing about the benefits of equity indexed annuities for years and will continue to do so until I find a better safe money alternative for the families that I work with. A brief explanation of what they are is a fixed annuity with the option of having what is credited to your account based on a market index such as the widely used S&P 500. If the market goes up, your account is credited accordingly. If the market goes down, your account does not go down at all. Meaning all principal contributions and past earnings are unaffected by the downturn. You would just earn nothing in the down year. It is important to note that the index does reset annually and your potential earnings are based on that. So, you take part-and make money-in the rebounding market instead of just hoping to recover your losses.

I would encourage you to look into this as it is a very viable option for both IRA and non-qualified accounts. Consult with an advisor who has a substantial amount of experience with these unique financial vehicles to learn more.

Dennis Foster has been helping families with financial and estate planning needs for 25 years. He welcomes comments and questions and can be reached at 605-887-7069 or dennis@nvc.net.