Retirement plans: a paradigm shift for farm operations and employee retention

Narrator: We are grateful that you are joining us for another episode of the Ag View Pitch, as we know that your time is very valuable. Our team at Ag View Solutions is always here for you for any questions or comments that you may have. Please feel free to reach out to us at cbarron@agviewsolutions.com. And now, here is your host, Chris Barron.

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch, and we have a guest with us today to discuss retirement plans and a lot of things that some of us don't probably spend as much time on or maybe even think about in the way we should. And so we have Travis Martinik with us today, and then I also have my sidekick, my, my son here, Sloan Barron. And so we will be just kind of having a brief conversation here on the idea of retirement plans and 401s and that kind of thing. Just ways to, you know, think about how you can take care of your employees. And we're working with a lot of farm operations that are in the midst of transition, and one of the things I want to point out is that, you know, there's a paradigm shift in retirements for farmers, especially probably in the next 10, 20 years.

And the reason I want to bring that up, and the reason I think this is an important conversation, is that You know, mom and dad and the older generations' retirement was the land. It was renting that ground out and those kind of things. And as these operations that we work with, and as all farm operations continue to get larger, more sophisticated, have more employees, things are just changing. And so with that said, I thought it was important to bring Travis in and have Sloane kind of help me here with some questions around some things that we need to be thinking about in our farm business with regard to not only transition but retirement for our employees, for our family members, and probably even for ourselves. And so with that said, Travis, I'd like you to go ahead and give a brief introduction to yourself.

I have Sloane do the same, and then we'll get rolling with some questions here.

Travis

Martinek: Sounds good. I appreciate it, guys. Thanks for having me on. Yeah, my name is Travis Martinik, and Benchmark Financial is who I'm affiliated with.

Chris

Barron: Closer to the mic. Got it there.

Travis

Martinek: Yeah. And so I've been doing that now for 7, 8 years now, and I don't know, it's been a joy, you know, working with you guys here briefly, just coming from a farming background. So it's fun to, fun to see the operation side of it and continue to work and help with the 401 that we've helped out. And we do the retirement plan side of things. But yeah, happy to dive into that with you guys here today.

Chris

Barron: Yeah, I appreciate that. And for our podcast listeners, they're all over the U.S. and Canada and I would say, and Sloan said offline to kind of mention, you know, we're working with you in our own farm operation. We just set up a 401 that will go into action starting in January. And so I think that's important that, you know, we're not just talking about this and telling people, oh, you need to do this, you do that. You know, we're living it ourselves too, right? So Sloan, you want to give your two cents here real quick and then we'll get rolling?

Sloan

Barron: Yep. So I came back to the farm probably, I mean, about a year ago now, so I've seen the whole growing season. Really fun. You don't get to sleep sometimes.

Chris

Barron: It's weird.

Sloan

Barron: But, um, yeah, I came back and we had a simple plan, which we'll go into a little bit more. When I came back and I kind of knew Travis through some channels that taught me about financial, uh, kind of an education, and I realized that we needed a 401. So I kind of started talking to my dad, and my dad started researching it, as you can kind of see in the history of the podcast. And he's like, Okay, we need to make a change really quick, and it's a really good change, and I think it's going to give us a lot of good benefits. And on top of that, our employees good benefits as well that they deserve because they work insanely hard in farming.

Chris

Barron: Everyone does, right? So let me start out with the first question here, Travis. As, as the average person's listening to this in a farm operation, number one, they're probably like, well, why do we even need to set up a retirement plan? You know, it's easier just to to, you know, pay an extra $3 an hour and let them figure it out, you know, or, or whatever. And so, you know, there's, there's also benefits to the, to the owners, right? And so talk a little bit about, um, first of all, why would— why should anybody listening to this be paying attention, and what are some of the benefits to them in their, in their farm business?

Travis

Martinek: Yeah, absolutely. I think I enjoy most about you know, starting Benchmark is we're very transparent with everything. And, you know, as you've learned from working with Mike Finley, just the fee side of things is very important. So making sure that you pay as little as possible in setting anything up is, is definitely kind of, you know, A1 as far as priority list. And so from there you can kind of go on. But I mean, I, I've enjoyed, you know, kind of learning from Mike and using his kind of philosophy. But at the same time too, there's a lot of benefits to the retirement plan if it's the 401k or what what have you. I mean, there's, you know, not only just the savings that you can have for income later on in life that's, you know, in your guys' case, not farm income, another avenue.

But there's business write-offs too that are there, you know, not that you might need them from the farm, but the ability to have them too. And just, you know, you guys had mentioned that you had the SIMPLE IRA, the limits that you can put away in there, and there's higher limits with the 401. So there's a lot of advantages as far as money you can put away as far as costs that can potentially be business costs there too. So it's a pretty well-versed product. And there's other, you know, I'll say 401 on the show quite a bit, but there's, you know, 10 different ones that you can go into based on your LLC and how it works and things like that too. But yeah, just making sure that you're kind of being conscious of the cost, you know, compound interest is pretty crazy how it works. I mean, you mentioned 1, 2, 3%, it makes a difference.

So making sure that you can get those costs as low as possible. We found a way to do that here at Benchmark Financial, and I like working with people like yourselves and kind of finding that, hey, this is kind of the aha moment, you know, with the 401 and what it potentially could mean to other farms too.

Chris

Barron: One of the big, um, you said aha moments or whatever, but one of the big light bulb moments for me was, you know, not picking on other companies, but looking at the fees and that kind of thing and the importance of, you know, a lot of us are busy, we're trying to run our businesses and we don't necessarily really have the time to do all the research and stuff. And finding somebody in the financial world that makes it even worthwhile for us to step aside and say, okay, let's redirect some of these funds. Let's diversify our financial portfolio so it's not just all in agricultural production or all in a trucking business or all in a construction business or all in whatever, you know, we do have some diversification. And obviously there's tax advantages to that.

But, you know, talk a little bit about just, again, we don't want to get into all the weeds super deep, but we want to kind of talk a little bit about, you know, you mentioned 401, but there's operations out there using SEPs and SIMPLE.

Travis

Martinek: Correct.

Chris

Barron: What are the advantages of one versus the other?

Travis

Martinek: Yeah. So, you know, a smaller operation cost-wise might make more sense for a SIMPLE IRA. That they can set up just to have the retirement plan for the employees. You know, maybe some of the downfalls of that are just the limits that you can put into it. A lot of operations might want to put more in. That's where the 401 comes in nicely. Higher limits that you can put in per year. You know, just for example, you can potentially put in $22,500 into it if you're under 50 years old. If you're over, you've got a $7,500 catch-up. Those numbers are starting in 2023. So $30,000 that you can throw away in there is a pretty good amount. For really a generational wealth product if you're setting up a business that can kind of be passed down too. So it's, it's nice there, you know, depending on your LLC structures, you could have a SEP, you know, as well, a solo 401k. So there's options.

They all have different features to them, whether it's, you know, if you're looking for something to stack a lot of money away, or if you're looking for, you know, a write-off. It all depends on what your structure is, but the options part is nice there.

Sloan

Barron: So Yeah, good. So I'll go ahead and not interject, but basically say the biggest reason that was really awesome for me, for us switching to a 401 is, um, the Roth version. So with most farms that I think you see, Dad, uh, they usually have simple IRAs and they're easy set up and they're super easy to administer. And that comes with the disadvantage of you don't have a Roth option. So for me, for some reason my dad doesn't pay me a lot of money.

Chris

Barron: I don't know why.

Sloan

Barron: I don't know why he doesn't pay me tons of money. But no, just joking, I get paid quite a bit. But no, I don't. Uh, but no, for like the lower income, so I'm gonna say probably if you're below $70,000 income, Roth makes a lot of sense taxably. So say you have I don't know, 20 employees and 10 of them make less than $70,000, the Roth option's awesome for them because they're not in the 24% tax bracket, so they can't get that tax shelter like traditional money would. So say you can get all your money out of the 24% tax bracket with traditional as a higher paid employee, but if you just hired your son in and you can't pay him a ton right away, but you can give him the advantage of having a Roth account like in a Roth 401k to where it can compound tax-free while he's still in a lower tax bracket.

So that's just an amazing benefit that you don't get with the simple IRA, which is why I'm super happy we switched to a Roth 401. And I guess a 401 in general, we have Roth or traditional because it suits everyone at every income bracket in our company.

Travis

Martinek: No, I'm glad you mentioned that. And that's one of the biggest advantages of the 401 is just the flexibility. It fits most of your employers more more than a simple IRA would. So there's a lot of things that you can set up there as far as how you want it to look. You know, a lot of people will have problems too in putting in too much money, but maybe employees not putting in. If you've got a current plan, the 401, you can kind of get around that by offering, you know, a certain match. So you can have those employees that want to put more away not be, you know, kind of restricted. So that part's nice too.

Chris

Barron: One of the things that, you know, you guys talking about that just makes me think too that you know, a lot of our farm operations are at a size and scope where— and the majority of people listening here are going to be probably in a situation where 401 would probably be the best suited option for the majority. And one of the things that I want to bring up is I think there's a lot of tax advantages, not only from what you guys are talking about, but the other thing that we see with a lot of the farm operations we work with that are in transition— I'm just thinking of some of the family operations and the family businesses, maybe they have 1 or 2 employees, but they have 3 or 4 family members that are employees of the business. And so the benefit there is, let's say for example, mom and dad are getting closer to retirement age, but they're not there yet.

But, you know, the kids are having kids, right? So the 30 and 40-somethings are having kids, raising a family, money isn't, isn't in excess, you know. So that's what's hard, you know. You say, okay, well yeah, we need to put 10% away or whatever, you know, we would like to put away. But it's hard, you know, when you're raising a family and, and when, you know, in agriculture some years are just not that good. And one of the things that I see, and we bring this up a lot to families, is that, you know, if mom and dad are in a position to do some gifting they could do some gifting over to that family in lieu of payroll. Instead of giving them, you know, increasing payroll or whatever, yes, mom and dad raise, raise their income or pull a little bit more out of the farm, but they turn around and gift that over to the kids.

Then the kids could go ahead and invest that, you know, yep, exactly, in their retirement. And then there's an additional tax advantage to them there. And so You know, it's a tax advantage on top of a tax advantage on top of a tax advantage.

Travis

Martinek: Yes. Yeah, absolutely. Especially just having, like you said, those family members in there and having everyone individually, you know, be able to get those advantages on top of just, you know, the business side of it. It's, I mean, for a lot of people listening, it's probably the individual tax advantage that's more beneficial out of it, you know.

Sloan

Barron: Yep, yep, yep. And so a situation I just thought of that some farmers do is, uh, how we kick— how in farming we kind of kick tax liability a little bit down the road. How was like—

Chris

Barron: we never do that.

Sloan

Barron: What are you talking about? No, I never— depreciation?

Chris

Barron: What?

Sloan

Barron: What's that? No, but how we do that. But with this 401k, it gives you a— you don't exactly have to, um, it doesn't have to be just your salary. Say you have farm income that you've been kicking down the road, you— all you have to do is show a gain of however much you want to put more in your 401k and put that more in. So say For example, the 401's limit, so if you're above 55 is $30,000. If you're below it, it's $22,500. Those are way higher limits than a simple IRA, which is about $14,500. So you got almost an extra $15,000 to go and use. So like a farmer who's kicking it down to, I don't know, $400,000 thing down the road over the next 5, 10 years, Travis could help me make a business plan with it. And you're just going to show gains for that money.

So you're going to, as long as you do it correctly, you can get a 25% deduction as a small business owner and that 25% deduction or however much you want to show as a gain, should put that in your 401k and then you get to deal with that. It grows, or then it grows tax-free and then it's traditional money now. And you get to deal with that tax burden as you would like to in your future instead of one day for some reason you just don't want to, you can't farm, which would be terrible. And you have to pay it all right now, or for some reason landlords just don't want to work with you anymore and you got to just deal with it all then. Instead, you can kind of put it on your own timeline and be able to deal with the tax burden as you so choose instead of having just huge waves of taxable income hit you. And it just is not fun when you're in that 30-some tax bracket.

Chris

Barron: Yeah, it is a way to unwind a little bit of— I always call it, Sloan, I always call that tax liability bulldozed forward. So it's like a bulldozer just pushing these tax liabilities forward. And a lot of times when we do our, um, at the end of the year, and I see this on most balance sheets, most balance sheets don't show the tax liability, right? You know, you don't, you don't say, you know, okay, the, the farm is worth $10 million, but oh, by the way, there's a, there's a $1,500,000 tax liability, you know, that we're bulldozing for that. I don't care who you are, when it is, however, that's got to be paid someday. And there are ways to mitigate that. This is exactly what Sloane's saying and kind of what, you know, what I was bringing up with the ways to do some gifting and to start moving some of that money around.

Are there some other things that are coming to your mind, Travis, that I think that you would think are important that people kind of think about?

Travis

Martinek: I guess, yeah, before I touch on that too, Sloane, you're exactly right. I mean, it's pretty easy in a 401 with that flexibility to write in how you want deferral income. So you got your salary, if you've got gains, if you got bonuses, you can write all that in and defer off of all of it. So I'm glad that you mentioned that. That's definitely a nice piece of the 401. I guess, yeah, just reiterating again the importance of higher limits on those Roth accounts. If you understand the Roth piece of it there, the 401 is separate from your IRAs, so there's quite a bit of money that can be put away in it. And I'll just reiterate again too, that the generational, you know, you set it up for your business or your farm operation, it's there when you, you know, walk away from it, it continues to go pretty easily. So that part is nice of it.

Um, you know, there's constantly tax laws changing there, and I'm sure we can jump into that on another one. But yeah, it's, it's, it's a really great product that, you know, should be utilized more.

Chris

Barron: Yeah, definitely. So, um, I don't know if there's anything else. I really didn't want to get into the weeds too deep. I wanted to kind of get out there the benefits and the opportunities that are there that I think again it's a paradigm shift for farmers. You know, we used to depend on the land as our retirement and I think that is a big portion of our retirement, but I think the diversification consideration is well worth the time invested in kind of at least doing your due diligence, looking at your operation, looking at your diversification and asking yourself are we Are we set up for, you know, different types of events in the economy and those kind of things and taking care of our employees, taking care of our family and that kind of thing. And really appreciate, you know, Sloan and I definitely really appreciate your help. Sloan, did you have a comment?

Sloan

Barron: Oh, just making sure people can get a hold of Travis.

Chris

Barron: What is it? Yeah, so we'll do that here in a second. I want to finish up. Um, just also by kind of saying a couple other things that, um, you know, Travis, you signed up for the, um, conference in Florida too, so, um, so he'll be there, um, with us too. So if anybody is listening and you are going to be at the conference in Florida, they could, can grab you one-on-one. Yeah, absolutely. And again, this isn't— it's not an advertisement, it's not a recommendation. It's just, you know, again, with the Ag View Pitch and, and with Ag View, I mean, one of our One of our core values is transparency, and we want to make sure that, you know, we're transparent, but we're also here to try to help you and your farm operation. And if we find a benefit or a thing that's helping us in our operation and we can help you, that's what we're really doing this for. So yeah, absolutely.

As Sloane said, if people want to reach out to you right now, what's the best way to get a hold of you?

Travis

Martinek: So our website is benchfn.com. You can reach us there. Otherwise, my cell phone number, my direct line for the company would be 319-727-8383. But again, yeah, just feel free to reach out. Email too is travis@benchfn.com. But I'm glad you mentioned that transparency aspect of it too. We've been working, you know, closely with Mike Finley, who's been on the podcast, and kind of taking his approach, you know, being 100% transparent. What you see is what you get. We're going to tell you every fee that's there and it's not there because there's more that are not there, fortunately, which is nice to to be able to work with. So yeah, I know it's nice. We'll tell you how it is. And yeah, I again appreciate having me on today and looking forward to speaking with some people down come January.

Chris

Barron: Did you have any final thoughts?

Sloan

Barron: Nope, that's about it. It'll be warmer in January than it will be here.

Chris

Barron: Yeah, it'll be nice in Florida. But now again, to everybody, we just, like I said, this isn't an advertisement. It's not a recommendation, but just one of the observations that Shay and I see a lot in transition and these family businesses is that there's a huge amount of opportunity to do some things for your employees. Employee retention has been a big issue. Attracting employees has been a big issue for a lot of, a lot of you out there. And so again, we just feel like this is something that would help in those areas as well. And also give you some tax advantages and some different things to help mitigate the tax consequences. And we've been pretty fortunate to have a couple of good years, and a lot of you in positions to maybe have this as a consideration. So with that said, again, Sloan, thank you, and Travis, thank you. Really appreciate it.

And that's all we got for today, and we will catch you again next time on the Ag Newscast.