How to Use an IRA to Buy Land

Individual Retirement Accounts (IRAs) typically hold traditional investments such as stocks, bonds or certificates of deposit (CDs). However, a special class of IRA can hold just about any asset. A self-directed IRA allows a third-party custodian to hold your assets, but invests them as you direct. In one of these accounts, you can own businesses, precious metal bullion or real estate, including houses, apartment buildings or parcels of land.

Open a self-directed IRA account. You will need to select an IRA custodian who allows you to hold real estate in your self-directed account. It's wise to have your accountant review your plans to ensure you are choosing a good quality custodian.

Fund your IRA by making your IRA contribution to it or by rolling over funds from another IRA. You will need to have enough money in your IRA account to buy your intended piece of land because IRA-compatible non-recourse financing for raw land is very difficult to obtain.

Follow your custodian's procedures for your IRA to purchase the land. The custodian might require you to fill out a special "Direction of Investment" form or complete other paperwork to direct the release of funds for the deposit and for the eventual purchase of the land. Once the transaction closes, the land will be placed into your IRA account.

Continue funding your IRA account to pay any expenses that accrue. All of the expenses of the land need to be paid through your IRA account. If your land doesn't produce any income, you'll need to continue making distributions to your IRA to pay for the land's property taxes, other carrying costs and the standard fees for your IRA account.

Avoid "self-dealing," which is the IRS' term for when you use your IRA property for personal benefit. Self-dealing could include using your land for a camping vacation or hiring your son's lawn-mowing business to cut down the brush on the land.