Buy Farmland With An IRA or 401-K

Are you a U.S. citizen or resident interested in buying farmland or other agricultural projects but don’t have the funds to make it happen? Did you consider your IRA?

You’re a savvy investor.  You’ve done your research.  You know it’s critical that you diversify your holdings.  You know that putting money into appreciating assets that produce high-demand products just makes sense.  But you don’t have the money to invest.  Or do you?   

The fact is that you’re probably sitting on a bundle of investment cash and don’t even know itit’s your Individual Retirement Account (IRA).   

That’s right, you can use funds in your IRA, SEP or 401-K to purchase your dream investment – farm land.  It’s called a Self-Directed IRA (SDIRA), sometimes known as a Checkbook IRA And, yes, your SDIRA can be a Roth account. 

An SDIRA allows you to use the funds in your retirement account to invest in alternative assets outside of the usual stock market, mutual funds and bonds.  With just a few exceptions, the IRS generally doesn’t care what the investment is or where it’s located. 

 

Like a regular IRA or 401-K, there are rules regarding the amount you can contribute annually, when you have to take a distribution, etc.  There are also rules regarding what you can invest in and how your IRA or 401-K must be administered.   

 

The rules really boil down to that you can’t invest in collectibles, life insurance or engage in self-dealingYou can find much of that information in the IRA Online Resource Guide or from your plan administrator.   

How do I get started?

First, you’ll want to find a plan administrator or custodian to manage the paperwork, take care of tax-related recordkeeping and provide the education you need to stay on track.  There are dozens of excellent firms out there that can help you get started.  The Ultimate List of Self Directed IRA Custodians and Administrators is a great place to start.  

Over 20% of Simply Natural farmowners hold their land in an SDIRA.  Midland IRA and NuView are the companies most often used by Simply Natural farmowners because of their experience in off-shore real estate acquisitions 

Your administrator will help you transfer funds from your existing IRA, SEP or 401-K to a new self-directed account.  The paperwork and getting your account set up usually takes just a few days.  Transferring the funds will take a bit longer, but the whole process typically takes just a couple of weeks.   

Be aware that some large IRA companies may push back on a transfer of funds from the account you have with them.  Let’s face it, they make a lot of money from the assets you have them managing.  Be persistent because they cannot keep you from transferring from one administrator to another. 

Once the funds are in your self-directed IRA or 401-K, you’re ready to buy your farmland, greenhouse or other nonstandard opportunitiesYour new SDIRA custodian will take care of all the IRS tax reporting requirements. 

How do I make a purchase, farmland or else, through my ira?

The purchase process is pretty simple.  Once you’ve signed the contracts for the purchase of your asset, you can either have your administrator wire the funds directly or set up a checking account for your IRA and do it yourself.  If you choose the latter method, just make sure you don’t use that account for anything but purchasing IRA assets and the expenses related to them. 

Your SD IRA administrator will walk you through the entire process and give helpful suggestions to make it as easy as possible.  One of the advantages of having a checking account associated with your SDIRA is that if a high-yield opportunity arises that requires quick action, you’re prepared to move forward and profit. 

What are my responsibilities?

SDIRA owners will, of course select and purchase their chosen investment, but they also will need to maintain the bookkeeping, provide an annual valuation of the assets to the administrator and don’t break the rules. 

Again, the rules boil down to not making prohibited investments and you are prohibited from “self-dealing.”  Self-dealing includes any activities that avoid the intended use of an IRA.  Basically, you can’t buy or sell something from or to your IRA personally, or use any asset that your IRA invests in The usual example is that you can’t buy a home with your SDIRA and then live in it yourself.  All of the rules regarding prohibited investments and self-dealing are covered in the IRA Online Resource Guide. 

If in doubt, don’t buy it.  Check with your administrator before every purchase to make sure your investment qualifies. 

Can my farmland be titled under my ira?

If you own land, a greenhouse or other real estate, you can either title your purchase in the name of the IRA or you can have it titled in the name of an LLC or other legal entity, which is in turn owned by the IRA. 

Many Simply Natural farmowners use a U.S. LLC because it gives them some flexibility; you can add additional assets to the LLC, your IRA administrator may only charge a single fee since they are managing a single asset (the LLC instead of multiple, individual assets) and if your farmland changes hands as a result of you passing away, you don’t need to re-title the assets. 

As with any financial decision, make sure you consult with your accountant or other financial advisor before proceeding; in some circumstances there may be tax implications.  Most questions can also be answered by the professionals managing your SDIRA. 

What’s next?

Isn’t it time you utilize your hard-earned retirement money the way you want to without the limited options most IRAs offer?   

Check with your current IRA company to see if funds can be transferred and then get going. Choose an SDIRA administrator and start putting your money into assets that aren’t correlated with the stock market, provide a high-yield potential and truly diversify your portfolio… become a farmer by purchasing managed farmland or greenhouses! 

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