Raw land inside a self-directed IRA raises a prohibited transaction question the moment upkeep enters the picture
Take 40 acres of raw ag-adjacent land under contract at 88k, all cash inside a traditional self-directed IRA, in a rural market where low price point land like this trades often. Cash rent from a neighboring farmer might run around 2,600 a year, thin income but tax-deferred, with a plan to hold 15 years and sell to a builder or a larger operator later. Custodian paperwork asking who signs the cash lease and who handles annual tasks surfaces the real question. A parcel like this needs a fence line walked, brush cut on the road frontage, and someone to handle the county's ag assessment renewal, all small jobs an owner would normally do personally on a Saturday. Inside an IRA, that's exactly what's prohibited. The account holder cannot perform work on IRA-owned property, so every one of those small jobs has to become a paid third party service billed to and paid from the IRA, and on 2,600 dollars of gross income, brush cutting alone at 600 dollars can eat a meaningful share of the return. The more nuanced question is who counts as a disqualified person. A neighbor with no family relation and no shared entity is generally not disqualified simply for leasing the land, but any informal exchange of favors between that person and the IRA holder personally, separate from the IRA lease itself, is worth having a self-directed IRA specialist review before it becomes a pattern, since the disqualified person rules are strict and the penalties for tripping them are severe. The underlying decision is real either way: accept a near zero net yield for 15 years on the bet that the land appreciates and the third-party service costs stay manageable, or redeploy the capital into something that covers its own upkeep.
