Here’s some common personal finance advice: “Use a Roth IRA when your income is low—because the tax deduction today isn’t worth much, and you’ll probably be in a higher bracket later.”

For salaried employees with predictable career trajectories, it might make sense. But farmers and food business owners are on a different path—and that standard advice often doesn’t hold.

Roth vs. Traditional IRA: The Basics

Here’s a quick recap of these two tax-advantaged accounts:

Traditional IRA: Contributions are tax-deductible (if eligible), lowering your taxable income now. You pay ordinary income taxes when you make a distribution in retirement.
Roth IRA: Contributions are made with after-tax dollars. No tax break now, but withdrawals in retirement are 100% tax-free.

So the choice comes down to this: Do you want the tax benefit now or later?

All Else Being Equal, Same Tax Advantages

Let’s say you are in the 12% bracket now and expect to stay there forever—even in retirement.

Traditional IRA: Save 12% today (tax deduction), pay 12% later when withdrawing → net tax savings = $0
Roth IRA: Pay 12% now, withdraw tax-free later → same net result

If the tax rates match up, it’s kind of a wash. But there are reasons it still matters. Let’s dig in.

When a Traditional IRA Might Be Better

1. Triggers Tax Credits

Lowering AGI can help you qualify for:

Saver’s Credit
EITC
ACA Premium Credits
Student loan caps (SAVE Plan)

Even if your tax bracket doesn’t change, a Traditional IRA can get you cash back or lower expenses in other areas.

2. You Need Cash Now

If putting $3,000 into a Traditional IRA gets you a $600 refund that helps buy seeds or repair a tractor in the spring—that’s worth a lot more than a tax benefit 30 years from now.

3. You Want to Reinvest in the Business

For early-stage or reinvestment-phase farmers, freeing up cash today matters more than maximizing long-term tax-free withdrawals.

When a Roth IRA Might Be Better

1. You Don’t Need the Deduction

If you don’t owe taxes and don’t benefit from any credits (maybe due to higher AGI or no qualifying kids), then Roth is great: you lock in tax-free growth and never worry about Required Minimum Distributions (RMDs).

RMDs are when the government forces you around age 73 to take money out of those accounts and finally pay taxes on it.

2. You Want to Hedge Against Future Tax Changes

Even if your tax bracket stays the same, future tax laws might not. Having Roth money gives you optionality.

3. You Want Simplicity in Retirement

Roth IRAs have:

No RMDs (ever)
Tax-free withdrawals
Fewer planning headaches

If you build enough Roth early on, you can control when and how you take income in retirement.

How the Traditional IRA Contribution Can Trigger Tax Credits

A Traditional IRA contribution is an above-the-line deduction, which means it directly reduces your Adjusted Gross Income (AGI). If you contribute $3,000 to a Traditional IRA, your AGI drops by $3,000. This lower AGI can help you qualify for tax credits and reduce things like your health insurance costs or student loan payments. The contribution can be made up until the tax filing deadline and still count for the previous year.

Key Tax Credits to Watch (2025)

Here are some of the most important tax credits that affect farmers when deciding between Roth and Traditional IRAs:

Saver’s Credit (Retirement Savings Contributions Credit)

Maximum Credit: $1,000 (Single), $2,000 (Married Filing Jointly)
Income Limits:
- Single: Up to $39,500
- Head of Household: Up to $59,250
- Married Filing Jointly: Up to $79,000

Earned Income Tax Credit (EITC)

Maximum Credit for a family of 3 or more children: $8,046
Income Limits:
- Single with no children: Up to $18,591
- Married with 3+ children: Up to $66,819
Note: Must have some earned income to qualify.

ACA Premium Tax Credit (APTC)

AGI should be roughly between 138% and 400% of the federal poverty line.
For a family of 4 in 2025, that’s roughly $44,000 to $128,000.

Student Loan Repayment (SAVE Plan)

Payments are based on discretionary income = AGI above 225% of the poverty line.
For a single individual in 2025: 225% of $15,650 = $35,212.50. Income above this amount increases payments.
Lower AGI = Lower required payments.

Porque No Los Dos? Using a Split IRA Strategy

You don’t just have to choose a Traditional or a Roth. In fact, you may benefit the most from using a split contribution strategy — a portion in Traditional and a portion in Roth, up to the total annual contribution limit. Here’s one we used last year with a client.

A farmer had a strong year. Part of a three-person farm partnership, CSA sales were the highest ever, the farm invested in a few key pieces of equipment (capturing the NY investment tax credit), and still the client’s AGI was $26,500.

We contributed $3,500 to a Traditional IRA, which dropped AGI to $23,000. That triggered the 50% Saver's Credit, giving them a $1,000 credit—and fully eliminated their income tax liability.

We didn’t go further with Traditional because the credit had maxed out and there was no more income tax to reduce. So we put the rest of their retirement savings into a Roth IRA for long-term tax-free growth.

This combination gave them:

A $1,000 credit
A tax deduction on $3,500
Tax-free retirement income on the rest
A tax benefit equivalent to a 28% marginal tax bracket contribution and optimal contributions to a tax-free Roth.

What About Retirement?

Most farmers will retire with modest savings, limited Social Security, and a small taxable income footprint. That means you’re likely to stay in the lowest tax brackets—or even under the standard deduction entirely.

So taking RMDs from a Traditional IRA may not result in much tax at all. And intentionally using up your lower brackets can help you stretch retirement income.

This is where tax diversification becomes valuable.

Why a Mix of Traditional and Roth Creates Flexibility

You don’t know what future tax rates will be—or how your income will change if you sell land, inherit assets, or shift off-farm. By contributing to both Traditional and Roth IRAs over time, you’re hedging against uncertainty.

That flexibility lets you pull from Roth accounts when you want to avoid pushing into higher tax brackets, use Traditional distributions when you’re under the standard deduction, and control your income in retirement to manage things like Medicare premiums or capital gains thresholds.

Think of it as giving your future self more levers to pull.

The Bigger Picture: This Is About More Than Just Retirement

Tax planning isn’t just about reducing next April’s bill—or waiting 30 years to enjoy tax-free income. The real value is in what you do with the cash you free up today.

The $600 refund from a Traditional IRA contribution? That might cover seeds, fix your truck, or help you hire part-time help during the season.

The point isn’t just to avoid taxes. It’s to reinvest in your farm, grow your business, and build long-term resilience.

Bottom Line

A Traditional IRA can unlock tax credits, reduce AGI, and give you cash when you need it. A Roth IRA gives you tax-free retirement income and long-term planning flexibility. A split strategy often gets you the best of both—especially when you're near key income thresholds.

If you're close to any of the thresholds listed above, don't leave it to guesswork. Make a plan, run the numbers, and use your retirement contributions as a strategic tool—not just a savings account.

You’ve built something meaningful. Let’s make sure your finances help it thrive—reach out today.

Traditional, Roth, or Split IRA Contributions