Yes. An IRA or Solo 401(k) can purchase raw land, agricultural land, timber land, and similar undeveloped parcels. Land is a real asset that can hold value through economic cycles and appreciate over time, particularly as development expands or land use changes in an area.
The plan entity purchases the land and holds title, exactly as with any other real estate investment. All acquisition costs (purchase price, closing costs, earnest money, surveys, due diligence fees) are paid from the plan account. If the land produces income (through a farm lease, timber harvest rights, or mineral royalties) that income flows back to the plan entity account.
Standard plan rules apply throughout: the entity is the owner, you are the administrator, and all money flows through the plan account.
Raw land typically produces no income. Property taxes, insurance, and any maintenance costs must still be paid from the plan account on an ongoing basis, with no rent or lease income to offset them. Before purchasing raw land, ensure your plan has sufficient cash reserves to cover holding costs for the expected investment horizon. Running out of operating capital in a plan with no income-producing asset creates a difficult situation.
You cannot use plan-owned land for personal purposes (not for camping, hunting, recreation, farming, grazing your own livestock, or any other personal benefit). The prohibition extends to your spouse, lineal family members, and all other disqualified persons. The land is a retirement investment, not a personal asset.
A transaction to purchase land adjacent to or near property you own personally (even if the stated intent is investment) can be scrutinized as an indirect personal benefit and should be approached with caution and qualified legal counsel.
Non-recourse financing for raw land is limited. Banks and institutional lenders generally do not lend on vacant or undeveloped land. Seller financing (where the seller carries the note) and private loans from individual lenders who are not disqualified persons are the most common options. Some private debt funds may also lend on land, though availability varies. If debt is used, UDFI applies to income or gain attributable to the borrowed portion. The Solo 401(k) exemption from UDFI applies to raw land as it does to improved real property.
Can I sell plan-owned land to myself when I retire?
No. A sale of plan assets to yourself (at any time, including retirement) is a prohibited transaction under IRC Section 4975. You can take land as an in-kind distribution, which triggers a taxable event based on the appraised fair market value at the time of distribution. From that point it is your personal asset. Consult a tax advisor before pursuing an in-kind distribution of real property.
Can the plan lease the land to a third party?
Yes. Leasing plan-owned land to a non-disqualified person at fair market value is a permissible transaction. All lease payments flow to the plan entity account. You cannot lease to yourself, your spouse, or other disqualified persons.
Can a plan engage in land flipping?
Yes, but volume matters. Acquiring and reselling land on a regular basis can be characterized by the IRS as dealer activity (a trade or business rather than passive investing) which could generate Unrelated Business Taxable Income (UBTI). An occasional sale is unlikely to trigger this treatment; a pattern of frequent transactions is a different matter. Consult a tax advisor before pursuing land flipping as a strategy.
This information is provided for educational purposes only and should not be interpreted as tax, legal, or investment advice. Readers are encouraged to consult a qualified professional who can offer guidance based on their personal situation.