Many of our investors are buying land in the path of development using their under performing IRA accounts. In most cases, clients will need to open a Self Directed IRA with a new custodian in order to invest in alternative options. Companies like Fidelity, Lincoln, T. Rowe Price, Morgan Stanley, etc. only offer the traditional stocks, bonds and mutual funds. They do not offer actual land investment opportunities unless they are in a mutual fund or Real Estate Investment Trust or REIT. Since you will own the actual dirt, you need a Self Directed IRA custodian who can hold the land as an asset in your account. The process is simple; identify the custodian you would like to use, open a new account and transfer funds in from your old custodian. There are no tax consequences or penalties if you follow the guidelines.
There are several benefits to buying land within your IRA. First, there is zero cash out of pocket. Second, you are likely not getting the investment returns you were used to getting in your IRA back in the early 2000’s and you are looking for alternative ways to invest. Third, you defer or eliminate taxes on the growth of your land investment depending on the type of IRA you have. Growth in a Roth IRA for example, will be tax free if you follow the IRS guidelines. You should consult with your tax advisor or Self Directed IRA associate to see if using your IRA account is the best option for you. Many of our clients own properties in both cash and in their IRAs so they have access to the profits at different times based on their age and specific needs.