Southwest Illinois | GrainTrader - 1/28/2019 03:33
For those who have 401K’s, especially those with an employer match program, how do you balance saving for a farmland down payment/purchase and contributing to a 401K?
Currently my employer is matching 42 cents on the dollar. That match percentage changes quartet with the profitability of the company, but I think this is the most they’ve contributed since they’ve been in business. I’m a farmer at heart and want to own farmland. I am in what I consider a slightly inflated farmland priced area because of the proximity to the city here, but it’s still within reason of prices vs yields I hear on here usually, so I do intend on buying more land at a later date when I’m more stable and have down payment money to make the payment cash flow...
How crazy am I to not max my 401K contribution and forget about land right now? Or am I crazy to give someone else my money rather then buying even small parcels?
If you invest $1 and someone adds $.42(or even less) and you do not max out contributions I would say you are missing the boat. I worked off the farm for 18 years and if I recall correctly my employer for the last 14 years matched dollar for dollar up to 7%. then there was a discretionary match(based on profitability) on the next 13%. The discretionary match usually was never below $.20 and was usually between $.40 and $.60. Between their contributions and market gains in the 14 years I accumulated enough money to buy a pretty nice farm, however that is tough to do in a IRA so it remains funds. Had I took my contributions and placed them in savings I would have probably half of that saved up at best. That being said I did have the chance to buy 120 acres and I really needed some cash for the down payment so I did take a load out against it for 5 years. My accountant advised against it but without it I was uncomfortable and since I bought the farm for $2400 and it is worth 12-13K today I am sure glad I did it.
Every situation is different, but to turn down an immediate 42% return on an investment to purchase land that probably won't return 5% is a significant opportunity cost. However, I have a garage full of opportunity cost that may not provide the best return compared to an IRA or even land so I am certainly not one to judge.
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401K vs saving for farmland
