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Retirement Planning & Co-op Equity
As you plan for your retirement there are so many boxes to check as you work with your accountant, financial advisor and, perhaps, even your attorney. One item that should be on the list is your plan for your Rocky Mountain Supply equity that you have been earning over the years. This applies whether you are selling your farm or ranch, your business, or planning on passing the operation on to a family member. There are a few steps to take that will benefit you in the long run.
Rocky Mountain Supply has a dual equity retirement plan in place. RMSI has been retiring stock by patron age (this current year is patrons born in 1947 or earlier) and by the year in which it was earned (just finishing up the oldest block of stock — 1989 and prior). My first year here was 2009, and Rocky Mountain Supply has retired over $3.5 million in equity over the 11 years since I joined the staff.
If you have been operating under a federal ID number (sometimes referred to as an 81 #) and earning Rocky Mountain Supply patronage, you have been responsible to report that total dividend to the I.R.S. in the year in which it was earned. The benefit of this practice is that you have already incurred the tax on the front end. Consequently, when the accumulated dividends are paid out (a.k.a. retired) on the back end, you have no tax liability. The funds been working as a built-in retirement plan for you.
My advice to you is to determine whether you will want to keep operating under your federal id # after you have either sold your operation or it has changed hands. You should check with your accountant regarding the best course of action for your specific situation. If you are sure you will no longer need that federal ID #, there are a few simple steps you can take within the State of Montana to dissolve your entity and obtain a ‘Dissolution Withdrawal Certificate’ through the Montana Department of Revenue. Once you have obtained this certificate, you provide a copy to Rocky Mountain Supply. RMSI can then move the equity from the farm/business account to an account under your individual name and social security number. If there are multiple owners, we would need documentation to split up the equity accordingly.
If you are planning on stepping down from the family farm operation and have the next generation take over, there are similar options available.
The advantage of taking these steps is that your equity will be paid out to you much faster if you are set up as an individual and it is paid out based on your birth year. The retirements based on the year in which they were earned are much smaller (because there is so much more equity on the books for any given year) and it will be spread out over time.
I have recently gone through this procedure with several owner/operators who have either sold their business or were simply ready to retire. If any of the above scenarios apply to you or you simply have questions about your RMS equity, please give me a call, (406) 388-4009, at the Rocky Mountain Supply admin office in Belgrade. ◆