As the adage goes, “a dollar saved is a dollar earned”. Perhaps even more so if the dollar is saved from paying taxes and can go towards funding retirement. Many farmers may imagine a scenario where they keep working until their dying breath, and while that might be possible, it is prudent to have other income and a backup plan if needed. Additionally, there can be tax advantages to contributing to a retirement plan now, regardless of whether the income is needed in the future.
Many farmers fall under the sole proprietor / self-employed category, so that will be the predominant situation we’ll examine. It could be that the farmer, their spouse, or both are also working off-the-farm and contribute to their employer’s retirement plan. That can certainly be beneficial (especially if the employer matches contributions), but in some cases, it may alter the tax impacts of a self-employed retirement plan. Each farm’s situation will be a bit different, so be aware that this is not financial or tax advice but general education.
A traditional IRA allows taxpayers, such as self-employed individuals, to contribute up to an annual set amount. The limits are published each year by the federal government. For the 2025 tax year, the annual limit is $7,000 ($8,000 for age 50+), and in 2026 it increases to $7,500 ($8,600 for age 50+). Not only is the amount invested and allowed to grow tax-free until withdrawal from the account (when the withdrawal is taxed as income), but it can also provide a current-year tax deduction when the contribution is made. Another significant feature of these accounts is that contributions can be made up until the tax filing deadline of the next year. For example, a contribution can be made up until April 15 of this year, and it will count as a contribution for the 2025 tax year. Practically speaking, this means that a “pro-forma” or hypothetical tax return could be prepared to estimate current taxes and see how various IRA contribution amounts affect the taxes owed. You will need to specify to your IRA plan administrators the year to which the contribution should apply.
Traditional IRA contributions are deducted on line 20 of the Schedule 1 (Form 1040) and can reduce Adjusted Gross Income (AGI) (line 11a Form 1040) on the tax return. Both spouses can contribute to their own traditional IRA for a potential deduction of up to $14,000. Again, the deduction amount can be impacted by whether either spouse is covered by a work retirement plan and the couple’s overall income, but it can provide a significant deduction if allowed to take the full amount. If the taxpayer or preparer is using tax software to run scenarios, it can make comparisons fairly straightforward. If software is not available, an IRA Deduction Worksheet is included with the Form 1040 instructions that can be a manual way to calculate the traditional IRA deduction.
Many questions come up about Roth IRA accounts. They are also a helpful planning tool but are a bit reversed from traditional accounts. Roth accounts do not provide a current-year tax deduction, but when contributions and earnings are withdrawn later, they are not subject to income tax. It is important to note that the annual contribution limits are considered combined for both the traditional and Roth IRAs. For instance, a $3,500 contribution could be made to a Roth and a $3,500 contribution made to a traditional, as long as the combined total does not exceed the $7,000 limit per individual. Other plans exist, such as SEP, SIMPLE, and 401(k) retirement plans that are similar in nature, with some differing features and stipulations. As always, consult your accountant and/or tax professional for specific guidance on these and other tax/retirement planning tools. For further reading visit IRS Publication 590-A and the IRS website on retirement plans.
Burkett, Kevin. “A Dollar Saved is a Dollar Earned.” Southern Ag Today 6(8.1). February 16, 2026. Permalink
