The picture above is of the annual potato harvest that takes place all over Eastern Idaho each year. The next time you walk into Five Guys for a burger, you can now see where those bags of potatoes are coming from…literally.
Now, we city slickers may yearn for a beautiful day in the outdoors getting our hands dirty with an honest day’s work, but it’s not that simple. As I’m sure you can imagine, farming, (yes, even potato farms), come with a great deal of risk.
So it is with our own business, right? It’s not always roses and buckets of profit year after year. There are risks, as well as ups and downs, in every business and industry. Well, I’ve learned a lot from farmers my whole life (my family has a heritage of farming), but since moving to Idaho, I’ve learned even more keenly the importance of harvesting and where to deploy profits.
Talk to a farmer and you’ll learn this important lesson. In fact, any farmer worth their salt can tell you their own personal stories of the ups and downs of farming income. They’ll discuss the perils of the farm with so many factors that are out of their control. Fluctuations in things such as weather, commodity prices, and water, will certainly top their list.
So what do wise and sage farmers do? Simply stated, they don’t drive every dollar of profit back into their farm.
How Do Farmers Hedge Against Risk, and How Can We Also Do So?
Farmers have learned the hard lesson that their business income can vary drastically from year to year. They’ve discovered it’s extremely prudent to take some of the profits from a good year and put them into other income-producing vehicles. In fact, they even contribute to asset-protected buckets of wealth, as well.
For example, many will purchase rental property, speculate on other land, and, more commonly now, fund their own solo 401ks and Roth accounts. (Now let’s see who the city slicker is.)
It may seem odd to talk to a farmer about having a 401k. Isn’t their farm or land their 401k or retirement plan? A smart farmer will immediately disagree with you. There’s no guarantee that other family members will buy their business in the future, and most importantly, a few bad years could wipe out the farms quicker than “green grass going through a goose” (as a farmer may say).
The 401k or solo 401k is a way to invest their profits somewhere else (outside of the risk of the farm), and have it ‘protected’ from any possible lawsuit, including bankruptcy. In this case, they could lose the farm, but not their 401k.
This Option Didn’t Exist Until Recently
Fifteen years ago, the 401k wasn’t even affordable or an option for a small business owner. In fact, the concept of a self-directed or ‘solo’ 401k didn’t exist. But now they do, and Wall Street is again trying to misdirect, mislead and peddle their expensive, inflexible products on main street businesses. Don’t be fooled.
The self-directed solo 401k is quickly becoming a mainstay in the small business owners year-end tax plan and can be a powerful tool to save, invest and receive incredible asset protection at the same time.
Straightforward Benefits of the Solo Self-Directed 401k
- Set-up fees as low as $400
- Ability to invest in what you want
- No brokerage fees
- Affordable annual fees
- Big annual tax deductions if desired
- Ability to have a Roth and Traditional portion in the same 401k
Nonetheless, be wary of companies giving you a 401k without support. Many consider this opportunity dangerous and similar to handling a loaded gun without instructions or training. Thus, if you want to go down the self-directed path, make sure you stay up to speed on the rules and procedures so you don’t cause a taxable event in your 401k. Click here for a great website with 6 educational videos on 401ks and discount pricing for our clients.
Although a self-directed 401k takes a little bit of work to understand and maintain, the rewards can be significant. It’s not uncommon to see our clients exceed 15% returns consistently each year. The reason being they are investing in small businesses or property and assets they are familiar with, and they have inside knowledge on greater rates of return.
This lesson is for you and me!! Farming is just an example that drives the point home. Take a little bit of profit out of your business each year, and tuck it away in a self-directed solo 401k (or group 401k) and protect it from yourself. Protect it from your business, and invest it in some other industry, product or service that isn’t tied to your main business. The farmer can still teach us wise and prudent principles in a day of technological advancement.