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Self Directed IRAs

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CottonwoodCanyon

Well-Known Member
I'd like to hear from some people who have first-hand experience with self directed IRAs focused on farmland. What's your story? Pros and cons? Things you would do again, or wouldn't do again? Things you didn't know that you learned? I've done a bit of research and started discussions with my financial guys, now I want to hear firsthand!
 
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So yes you can buy farm land, timber ground in a Self Directed IRA. CRP is not conducive to this type of IRA…

Pros… You can use your qualified money to add acres, all the income goes into the IRA. A Roth might be an excellent option! You can roll a retirement plan into this, you can take a portion of your retirement and buy a farm and diversify !

Cons…The owner is not supposed to use the land (hunting/recreation). A active farmer cannot farm his own IRA until age 59.5. That’s something to review with your accountant !

Some other tidbits… you can buy a 80 acre parcel and have 40 in an IRA, & the other 40 could be in your name. So you could use that 40. The IRS is not watching over these Im pretty sure, but be careful !

**It’s not a good idea to post a big buck dead on Facebook & then say “smoked him on my Self Directed IRA farm”!

If you use a loan with a Self Directed IRA it’s a pain in the butt.

I have been using Self Directed IRA for several years. It’s a nice option.

Good luck I hope this helps !
 
Hardwood11 said:
So yes you can buy farm land, timber ground in a Self Directed IRA. CRP is not conducive to this type of IRA…

Pros… You can use your qualified money to add acres, all the income goes into the IRA. A Roth might be an excellent option! You can roll a retirement plan into this, you can take a portion of your retirement and buy a farm and diversify !

Cons…The owner is not supposed to use the land (hunting/recreation). A active farmer cannot farm his own IRA until age 59.5. That’s something to review with your accountant !

Some other tidbits… you can buy a 80 acre parcel and have 40 in an IRA, & the other 40 could be in your name. So you could use that 40. The IRS is not watching over these Im pretty sure, but be careful !

**It’s not a good idea to post a big buck dead on Facebook & then say “smoked him on my Self Directed IRA farm”!

If you use a loan with a Self Directed IRA it’s a pain in the butt.

I have been using Self Directed IRA for several years. It’s a nice option.

Good luck I hope this helps !
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Do you have a resource i can read up on this more?

1. So money in your IRA can be used to purchase land? If someone has say 100k in an IRA does that mean once they purchase the land with the IRA their IRA balance is now zero?

2. And then any income such as rented acres has to go straight back into the IRA? A person can only contribute 7k to an IRA per year, so is the income off the land part of that 7k or can it be added to the 7k?

3. You say using a loan in addition to the IRA is a pain, so really you want to be able to cover the purchase with the IRA completely or a combo of cash plus the IRA?

Maybe Im thinking about this wrong. Its something I have not heard of much.
 
sep0667 said:
Do you have a resource i can read up on this more?

1. So money in your IRA can be used to purchase land? If someone has say 100k in an IRA does that mean once they purchase the land with the IRA their IRA balance is now zero?

2. And then any income such as rented acres has to go straight back into the IRA? A person can only contribute 7k to an IRA per year, so is the income off the land part of that 7k or can it be added to the 7k?

3. You say using a loan in addition to the IRA is a pain, so really you want to be able to cover the purchase with the IRA completely or a combo of cash plus the IRA?

Maybe Im thinking about this wrong. Its something I have not heard of much.
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I’ll try to answer the questions, the best I can .

1… The value of the IRA will be the value of the land (approximately). If it’s $400,000 …your account will say $400,000 80 acres in Ringgold County Iowa as an example … etc…

2. You are limited on contribution per year, but income can be whatever ? You can make 5k, 10k, 15k … it just goes into the IRA account.

3. Have enough $$ in the IRA rollover to buy the farm, or split it up … like 50% IRA, 50% personal ownership.

Remember there is a management fee for a Self Directed IRA… I pay like $500 a year . Not bad .
 
Great response @Hardwood11 , thank you.

1. How has it been working with your custodian? How did you pick them? Would you do anything different in that regard or any advise on picking a custodian? Local? Big national group?

2. Why is a loan a pain? Let's say for example and round numbers I had $100k in a Roth to play with. Would it be better to buy something at that $100k value or use that value to "buy" something bigger, say $250k but with more annual income, on a loan, and then use contributions plus the income to pay down the loan, taxes, etc. ?
 
CottonwoodCanyon said:
Great response @Hardwood11 , thank you.

1. How has it been working with your custodian? How did you pick them? Would you do anything different in that regard or any advise on picking a custodian? Local? Big national group?

2. Why is a loan a pain? Let's say for example and round numbers I had $100k in a Roth to play with. Would it be better to buy something at that $100k value or use that value to "buy" something bigger, say $250k but with more annual income, on a loan, and then use contributions plus the income to pay down the loan, taxes, etc. ?
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I work with Equity Trust in Ohio . They are fine . I’ve heard there’s options in Iowa, & Sioux Falls, SD… local would be nice actually!

If you have a loan & income you will be subject to UBIT tax that defeats the purpose of an IRA (if the income is over $1000)…

CRP, you know I’m not sure, but the Custodian didn’t understand the program . Maybe if you had a local custodian, it might be different.

Cash rent seemed to be the best option ! Timber harvest income also goes into the IRA.

Good luck !
 
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