Using a Self-Directed IRA to Invest in Farmland

Using a Self-Directed IRA (SDIRA) to invest in farmland can be a powerful way to diversify retirement savings into real, tangible agricultural assets while enjoying tax-advantaged growth. Unlike standard IRAs that limit you to stocks and bonds, SDIRAs allow you to purchase real estate — including raw land or farmland — as long as the investment is held solely for retirement purposes and all income and expenses flow directly through the IRA. This means rental income from the land goes back into the account, and any appreciation in value grows tax-deferred in a Traditional SDIRA or tax-free in a Roth SDIRA.

However, the IRS imposes strict rules and prohibited transaction safeguards on SDIRA real estate investments. You cannot use or personally benefit from the land, hire yourself or family members to work on it, or sell property you already own into your IRA — all of these actions are considered self-dealing and can disqualify the IRA, triggering taxes and penalties. Additionally, all expenses (like taxes, maintenance, and repairs) must be paid from the IRA, and all income must return to it. Because of these complexities and the potential for heavy penalties if rules are broken, investors should work with a qualified custodian and tax professional familiar with SDIRA farmland transactions to ensure compliance and maximize the long-term benefits of this strategy.