Renting out farmland, unearned income, 401k questions.

[billygoatjohnson]

I might FIRE in a few years. Now, the goal is to keep income as low as possible for ACA and or roth conversions.  I might move to another part of the state, or country, or another country all together (on second thought if I'm in another country I can't contribute to retirement accounts). Let's say my only income is from owned farmland that I'm renting out for 30k a year. I believe this is considered unearned income so I can't contribute to retirement accounts.  Or, can I say that I'm actively managing it so I can contribute to my IRA or i401k. I'm guessing the answer is no, as there is little to no effort needed on my part.

Another options is to crop share it where I pay for x,y, and z. Then get x% of the yield to sell. That would be involved but a variable income.

Any other ideas?

[iris lily]

I might FIRE in a few years. Now, the goal is to keep income as low as possible for ACA and or roth conversions.  I might move to another part of the state, or country, or another country all together (on second thought if I'm in another country I can't contribute to retirement accounts). Let's say my only income is from owned farmland that I'm renting out for 30k a year. I believe this is considered unearned income so I can't contribute to retirement accounts.  Or, can I say that I'm actively managing it so I can contribute to my IRA or i401k. I'm guessing the answer is no, as there is little to no effort needed on my part.

Another options is to crop share it where I pay for x,y, and z. Then get x% of the yield to sell. That would be involved but a variable income.

Any other ideas?

I am the reluctant co-owner of an expensive piece of farmland in Northern Iowa, so I’m posting this just to follow. I don’t have a real voice in managing the farmland though.

[billygoatjohnson]

I might FIRE in a few years. Now, the goal is to keep income as low as possible for ACA and or roth conversions.  I might move to another part of the state, or country, or another country all together (on second thought if I'm in another country I can't contribute to retirement accounts). Let's say my only income is from owned farmland that I'm renting out for 30k a year. I believe this is considered unearned income so I can't contribute to retirement accounts.  Or, can I say that I'm actively managing it so I can contribute to my IRA or i401k. I'm guessing the answer is no, as there is little to no effort needed on my part.

Another options is to crop share it where I pay for x,y, and z. Then get x% of the yield to sell. That would be involved but a variable income.

Any other ideas?

I am the reluctant co-owner of an expensive piece of farmland in Northern Iowa, so I’m posting this just to follow. I don’t have a real voice in managing the farmland though.

Why do you say reluctant? I plan on asking my CPA one of these days but am in no rush currently.

[iris lily]

I might FIRE in a few years. Now, the goal is to keep income as low as possible for ACA and or roth conversions.  I might move to another part of the state, or country, or another country all together (on second thought if I'm in another country I can't contribute to retirement accounts). Let's say my only income is from owned farmland that I'm renting out for 30k a year. I believe this is considered unearned income so I can't contribute to retirement accounts.  Or, can I say that I'm actively managing it so I can contribute to my IRA or i401k. I'm guessing the answer is no, as there is little to no effort needed on my part.

Another options is to crop share it where I pay for x,y, and z. Then get x% of the yield to sell. That would be involved but a variable income.

Any other ideas?

I am the reluctant co-owner of an expensive piece of farmland in Northern Iowa, so I’m posting this just to follow. I don’t have a real voice in managing the farmland though.

Why do you say reluctant? I plan on asking my CPA one of these days but am in no rush currently.

It is owned by multiple people, my spouse inherited it. Because of spousal rights I have legal interest. I wanted to sell it. They all want to keep it. As they all age and die off, it will become more complex to manage, because there will be more people owning it.

[billygoatjohnson]

I might FIRE in a few years. Now, the goal is to keep income as low as possible for ACA and or roth conversions.  I might move to another part of the state, or country, or another country all together (on second thought if I'm in another country I can't contribute to retirement accounts). Let's say my only income is from owned farmland that I'm renting out for 30k a year. I believe this is considered unearned income so I can't contribute to retirement accounts.  Or, can I say that I'm actively managing it so I can contribute to my IRA or i401k. I'm guessing the answer is no, as there is little to no effort needed on my part.

Another options is to crop share it where I pay for x,y, and z. Then get x% of the yield to sell. That would be involved but a variable income.

Any other ideas?

I am the reluctant co-owner of an expensive piece of farmland in Northern Iowa, so I’m posting this just to follow. I don’t have a real voice in managing the farmland though.

Why do you say reluctant? I plan on asking my CPA one of these days but am in no rush currently.

It is owned by multiple people, my spouse inherited it. Because of spousal rights I have legal interest. I wanted to sell it. They all want to keep it. As they all age and die off, it will become more complex to manage, because there will be more people owning it.

Classic tail of inherited ground. My parents own a lot of acres. I have 3 brothers and sisters, fortunately my parents have done detailed estate planning. Still, who knows what will transpire. At the end of the day I expect nothing and will be happy with anything. Think of it as a small bonus every year and whatever happens happens.

[mcneally]

^ My grandpa got burned on some stock investments in the 80s then decided he would only invest in farmland and precious metals (his career was in farm advisory services, so he understood the market, but still). His four children, including my dad, inherited the investment farmland and agreed they would not sell in their lifetimes. The legal agreement says selling must be a unanimous decision. After that generation dies, it passes down to 12 grandchildren (not counting spouses). My parents tell me that somehow it's going to be sold before it becomes a bigger mess with more dilute income, but I don't see how.

Also, the net rental income is about 1-2% of land value. I suppose the land should increase in value with inflation, so that's 1-2% real, but not great unless it's a small % of your portfolio.

[uniwelder]

If your only income will be 30k, why are you so concerned about contributing to retirement funds?

[billygoatjohnson]

If your only income will be 30k, why are you so concerned about contributing to retirement funds?

To reduce income. Tax savers credit, ACA, etc.

[billygoatjohnson]

^ My grandpa got burned on some stock investments in the 80s then decided he would only invest in farmland and precious metals (his career was in farm advisory services, so he understood the market, but still). His four children, including my dad, inherited the investment farmland and agreed they would not sell in their lifetimes. The legal agreement says selling must be a unanimous decision. After that generation dies, it passes down to 12 grandchildren (not counting spouses). My parents tell me that somehow it's going to be sold before it becomes a bigger mess with more dilute income, but I don't see how.

Also, the net rental income is about 1-2% of land value. I suppose the land should increase in value with inflation, so that's 1-2% real, but not great unless it's a small % of your portfolio.

Yeah.

Then land you have property taxes, insurance, I think it's taxed as unearned income.

Stocks are taxed at long term or short term gains.

I will say rents are pretty solid and usually don't go down, if they do it's not much. They are not making more ground... I don't get scared when the stock markets tank because they have always come back, but it could take 10 years... Now birth rates are down in the U.S, people are choosing to have less kids or no kids, fertility is down 1% a year sense the invention of plastics which is making it harder to have kids. I'm glad I have the farmland in case our markets turn into Japans. Farmland is like a life long pension that keeps appreciating with an available lump sum cash out.

Maybe you could use the rent for roth conversions.

[Blackeagle]

I’m in a somewhat similar situation, with about $30K/yr income from my share of the family farmland.  Combined with dividend income from my taxable investments I’ve pretty much given up on ACA subsidies or staying in the 0% taxable gains bracket and acknowledged that my space for Roth conversions will be limited.  On one level, it kind of sucks, but having too much passive income to take advantage of tax breaks intended for low-income individuals is definitely, “Mustachian people problems” territory.

[billygoatjohnson]

I’m in a somewhat similar situation, with about $30K/yr income from my share of the family farmland.  Combined with dividend income from my taxable investments I’ve pretty much given up on ACA subsidies or staying in the 0% taxable gains bracket and acknowledged that my space for Roth conversions will be limited.  On one level, it kind of sucks, but having too much passive income to take advantage of tax breaks intended for low-income individuals is definitely, “Mustachian people problems” territory.

This is the EXACT issue I'm at. I have a large taxable account in VTSAX, plus the land.

Could do a HUGE roth conversion over a few years, pay the piper (taxes), and that would make my taxable account smaller.  Other than HSA I don't have any great ideas on how to reduce income to be eligible for ACA or tax savers credit...

Not to sidetrack but I plan on using the ACA system to the best of my abilities. 50% of Americans are obese, what percent eat processed food on a daily basis? Probably 80%+. I eat CLEAN (for cheap!), stay in shape, don't drink, don't smoke, no sugar, etc. Why should my insurance be higher to subsidize for the rest of the slobs... It's like having a perfect driving record but paying the same car insurance premiums as the guy that totals his car every year...

One of these days I'm going to try plugin in these numbers and different scenarios into projection lab and seeing if it can help shed some light on what to do.

I'm currently running without health insurance, for almost 2 years.