Meet Bob, a 61-year-old grain farmer in Nebraska. After decades of smart operations and reinvestment, he’s finally ready to scale back. But with fewer deductions and higher income, Bob now faces one of his largest tax bills yet. And he’s not the only one.
As farmers approach retirement, many experience a spike in taxable income when they expect to wind down their farming operations. Deferred grain sales, reduced expenses, and asset liquidations all combine to create what we refer to as the retirement tax trap.
In 2024, commercial family farm households reported a median farm income of $167,550 and total household income over $250,000. But most are still using basic retirement tools like IRAs and SEP IRAs, which cap contributions too low to offset peak earnings.
That’s where a Cash Balance Plan (CB plan) comes in. This IRS-qualified strategy allows high-income farmers to contribute $100,000–$250,000 or more per year, tax-deductible and retirement-focused. It’s widely used by doctors and business owners, but still underused in agriculture.
Keep reading to see how CB plans work, why most retirement tools aren’t built for farmers, and how to use this one to lower your tax bill while keeping the farm in the family.
For many farmers, the final stretch before retirement becomes the most profitable and the most heavily taxed. It feels backward. After years of careful planning, buying farmland, equipment, and managing margins, you’d expect to ease into retirement with a lower tax burden. But instead, income surges while deductions vanish.
Here’s why it happens and how it can quietly drain your last few years of hard-earned income.
For years, deferring income has been a smart tax strategy. By carrying unsold grain into the next year or delaying the receipt of payments, farmers can manage income spikes and keep tax liabilities in check. But when you’re approaching retirement, those delays catch up.
All the grain you stored, payments you postponed, and contracts you pushed forward eventually come due, often in the same year you stop reinvesting in seed, fertilizer, or equipment. Suddenly, that income is fully taxable, and there’s no offset to balance it out.
In your final working years, you could end up reporting multiple years of income on a single return with fewer deductions than ever. It’s the perfect storm for a painful tax bill, right when you’re ready to wind down.
During your busiest years, expenses naturally kept your taxes in check. You were buying inputs, maintaining equipment, paying help, and reinvesting in the operation, all of which lowered your taxable income.
But as you begin to scale back, those deductions start to disappear. You’re not upgrading equipment. You’re farming fewer acres. Maybe your kids or a tenant are taking over day-to-day operations. Either way, your write-offs shrink.
Meanwhile, income stays high, whether you’re working full-time or not.”
Even with fewer hours in the field, deferred sales and elevated commodity prices can help maintain a high income. When that happens, and your deductions are gone, your net taxable income surges. That can push you into higher tax brackets and generate a much larger tax bill, despite doing “less work.”
Retirement doesn’t just mean slowing down. It often involves selling off parts of the operation, such as land, equipment, and livestock. Each one comes with a tax consequence.
Depending on how long you’ve owned them and how they’ve been depreciated, the sale may trigger capital gains or ordinary income. These aren’t small numbers. A piece of equipment you sell for $200,000 might have a book value of $20,000, leading to $180,000 of income on top of your regular farm sales.
Now add in deferred grain payments, fewer deductions, and other one-time wind-down events, and your tax bill starts to compound. What might be manageable on its own can become overwhelming when it all hits in the same year.
Most retirement savings vehicles simply weren’t built for farmers in this situation.
If you’re earning $300,000, $400,000, or more, a SEP IRA with a $69,000 limit in 2025 barely makes a dent. Traditional IRAs offer even less room. And unlike full-time employees of traditional companies, you don’t get access to pensions or executive retirement plans; you must create your own.
So while your income is peaking and your deductions are fading, your ability to shelter income hits a ceiling.
Without a more advanced planning tool, you’re left exposed, paying taxes on income you’d rather keep, and sacrificing flexibility at the exact moment you’re trying to retire or transition the farm.
A CB plan is a powerful retirement tool that lets high-income business owners—including farmers—make large, tax-deductible contributions each year, often far beyond what IRAs or SEP IRAs allow.
Unlike traditional plans with flat caps, a CB plan is custom-built around your income, age, and retirement timeline. It’s structured more like a personal pension fund, designed to help you reduce taxes now while building guaranteed income for the future.
Here’s how it works:
Unlike defined contribution plans like a SEP IRA or solo 401(k), a CB plan doesn’t cap you at $30,000 or $60,000 per year. Instead, contributions can range from $150,000 to $300,000+ annually, depending on your income, age, and how close you are to retirement.
The goal is simple: reduce your taxable income now while building long-term retirement security. It’s a strong fit for farmers in their peak earning years, especially those with shrinking deductions who want to retire without selling off core assets.
CB plans give high-income farmers a way to save far more on taxes than traditional retirement accounts. They’re flexible, customized, and built to deliver real value when income is at its peak. Here’s how they work to your advantage:
A CB plan doesn’t start with a contribution limit; it starts with a goal. How much income would you like to receive annually in retirement? Based on that target, a licensed actuary calculates how much you need to contribute each year to fund it.
That’s the power of the strategy: you’re using IRS rules to shift income into a tax-deferred plan designed around your numbers. From there, a plan designer handles the technical setup: determining your allowable contributions, drafting plan documents, and ensuring compliance year after year.
This approach creates flexibility. In peak years with high farm income, you can contribute well into six figures. That’s a significant advantage over traditional retirement accounts, which restrict your ability to save based on preset limits, not your actual earnings or goals.
These actuarial calculations determine your annual contribution limits and can exceed $250,000, depending on factors such as income, age, and the number of years until retirement.
Every dollar you contribute to a CB plan reduces your taxable income for the year. For a farmer reporting $350,000–$500,000 in net income, a well-structured plan might allow for a contribution of $150,000–$250,000, instantly shrinking the income that’s subject to federal and state taxes.
Compared to the $7,500 IRA or even a $69,000 SEP contribution, this level of deduction offers far greater tax savings for farmers, especially those nearing retirement with limited write-offs left.
Here’s a simplified example:
| Net Farm Income | $420,000 |
| Cash Balance Plan Contribution | $210,000 |
| Adjusted Taxable Income | $210,000 |
| Estimated Tax Savings (depending on filing status and state) |
$60,000–$70,000 |
Farming income is rarely predictable. Market prices, weather patterns, deferred grain contracts, and equipment sales can all combine to create unusually high-income years, especially as you begin to scale back operations. CB plans act as a buffer during these peak years, letting you shelter large portions of income that might otherwise push you into the top tax brackets.
By intentionally using CB plans during high-income seasons, you can reduce volatility, avoid bracket creep, and maintain more control over how and when income gets recognized. This is especially valuable for farmers with limited deductions remaining and no interest in reinvesting in new equipment or assets just to offset taxes.
Turn this year’s earnings into retirement income, not IRS revenue.
Despite being one of the most effective tax and retirement tools available to high-income earners, CB plans are rarely discussed in farming circles. That’s not because they don’t apply. It’s because they fall outside the scope of most farm-focused financial advice. Let’s break down why this strategy is often overlooked:
CB plans are commonly used by professionals in the medical, legal, consulting, and private business fields, where income is high, deductions are limited, and retirement planning is aggressive. But they’ve never been part of the standard financial playbook in agriculture.
Most advisors who work with farmers focus on IRAs, SEP IRAs, and basic estate planning. These are familiar, easy to implement, and widely understood; therefore, tools like CB plans rarely enter the conversation, even when they’re a better fit.
There’s a common misconception that CB plans are only for large corporations with HR teams and big payroll systems. In reality, they work well for single-owner farms, family partnerships, and S corporations with consistent earnings and a short runway to retirement.
Yes, the plan must be structured properly and reviewed annually. But with the right team in place, an actuary, a third-party administrator, and a CPA, the setup and admin costs are modest, and your role as the farmer is minimal. You focus on your operation. The team handles the rest.
A CB plan isn’t something an advisor can set up on their own. It requires specialized plan design, actuarial support, IRS filings, and coordination with your tax strategy. If your advisor doesn’t have that infrastructure, or doesn’t work with a firm that does, they simply won’t offer it.
As retirement approaches, many farmers face two big questions: How do I pass the farm down, and how do I retire without putting the next generation under pressure? A CB plan helps answer both of these. Here is how they help support wealth transfer and estate planning:
For many farmers, the farm itself has long doubled as a retirement plan. Without another source of income or savings, often, the only way to leave your estate to your children is to sell land, equipment, or livestock—pieces of the operation that may have taken a lifetime to build.
A well-funded CB plan changes that dynamic. Instead of relying on a one-time sale or a series of asset liquidations, you have a steady stream of income set aside outside the farm. This creates flexibility. You can hold on to the land. You can lease it. You can transfer it at a pace that fits your family and long-term vision, without making decisions under financial pressure.
One of the most overlooked benefits of a CB plan is the freedom it gives you to retire on your terms. Succession doesn’t have to be immediate. It doesn’t have to be all or nothing.
Before you transfer farm acres to the next generation, keep that income on your financial statement. With a CB plan, you can fill up your tax-deferred bucket while you gradually step back from operations —handing off management responsibilities, or mentoring your successor—while still receiving income. This kind of phased transition creates stability for everyone involved. The next generation has time to grow into the role, avoid rushed decisions, and take over the business with confidence. You maintain a sense of purpose, income security, and control as the handoff unfolds. And you have a significant asset under your control.
Farming businesses are often asset-rich but cash-poor. Land, machinery, and livestock may hold immense value, but they aren’t always easy to divide or convert into income without disrupting the operation.
CB plans address this by creating a retirement income stream that exists independently of the farm. That means you don’t have to rely on leasing, selling, or subdividing assets just to fund your retirement. You can pass the operation down intact, without placing your successors under financial strain or forcing them to take on debt to buy you out. It’s a smoother, more sustainable path to keeping the business intact.
A well-structured CB plan doesn’t exist in a vacuum. It becomes part of your larger estate and transition plan. Once the plan is terminated or you reach retirement, the funds can typically be rolled into an IRA, where they continue to grow tax-deferred.
From there, the assets can be coordinated with trusts, gifting strategies, or buy-sell agreements, providing you with additional tools to structure an equitable and tax-efficient transfer of wealth. This is especially valuable if some heirs are involved in the farm while others are not. A CB plan gives you a flexible way to balance inheritances, minimize estate tax exposure, and retain control over how your legacy is passed down.
If you’re earning big, this is the tax-saving strategy most farmers are missing.
You’ve built a profitable farm. But as retirement approaches, income tends to peak, and so do taxes.
If your operation’s profitable and retirement’s on the horizon, a CB plan might be the single most effective way to hold onto more of what you’ve earned, without changing how you farm or rushing your exit.
You don’t need to sell land. You don’t need to overhaul your books. You just need a strategy that fits your numbers and your goals.
Don’t let the IRS take the best cut of your harvest.
No. You don’t need to have full-time employees to qualify. Many of the farmers we work with operate as sole proprietors or family-run operations. If your workers are family members or seasonal help, the plan can still be structured around your situation. We can design it to include or exclude certain employees based on eligibility rules and your goals.
In many cases, yes. Depending on how your CB plan is structured and your total compensation, you may still be able to contribute to a SEP IRA, traditional IRA, or even a solo 401(k). It’s all about designing a coordinated strategy that fits your income level and retirement timeline.
That’s a typical scenario, and CB plans are built to handle it. Contributions are calculated annually based on updated income and actuarial projections, so there’s room to adjust up or down within reasonable limits. If one year is especially strong or lean, the plan can be adapted accordingly with proper guidance.
Not at all. It’s not about how many acres you farm, it’s about how much income you’re earning and what your retirement goals are. We’ve helped operators of smaller family farms with strong income years use CB plans to save tens of thousands in taxes and build retirement security. If your farm is profitable and you’re nearing retirement, it’s worth a look.
Disclosure: The information provided on this website is for general informational and educational purposes only and is not intended as legal, tax, or investment advice. Actual tax savings will vary based on your individual circumstances, including filing status, income level, existing retirement plans, and other deductions. Cash Balance Plans and other retirement strategies must be carefully structured and administered to comply with IRS regulations. You should consult with a qualified tax advisor, financial planner, and/or pension specialist before implementing any strategy discussed here