How to Invest in Raw Land with a Solo 401k

Imagine owning a parcel of land today and watching its value grow over time. Investing in raw land through your Solo 401k allows you to capture that growth while enjoying tax-deferred benefits along the way.

This quick guide covers the rules, risks, and steps to buy land using retirement funds. You’ll also get a simple checklist and tips for managing or selling the property. By the end, you’ll know whether investing in raw land with a Solo 401k  fits your goals—and how to get started.

Why Invest in Raw Land with Your Solo 401k?

Raw land offers a unique way to diversify your retirement portfolio. Unlike stocks or bonds, undeveloped land often moves on its own economic cycle and potentially smooths out overall volatility. Plus, holding land inside a Solo 401k lets you tap into retirement‐plan tax benefits that might help your savings compound over time.

Tax Advantages & Compounding

✅ Tax-Deferred Growth: Contributions and earnings in a Solo 401k are generally tax deferred until you take a distribution. 

✅ No Annual Tax Drag: Because you don’t pay tax on gains each year, your land investment has more opportunity to compound. This could potentially boost your long-term balance.

✅ Catch-Up Contributions (if age 50+): If you’re age 50 or older, you may make additional “catch-up” employee contributions that could also grow tax deferred.

Portfolio Diversification & Potential Returns

Raw land doesn’t usually follow the same cycles as stocks or bonds, making it a potentially useful diversification tool. From 2018 to 2023, U.S. farmland values increased at a 5.1 percent compound annual growth rate, or roughly 1.4 percent after adjusting for inflation (USDA ERS). 

Source: USDA Economic Research Service 

While past performance doesn’t guarantee future results, land may offer long-term potential, especially when combined with the tax benefits of a retirement plan.

Key Considerations & Risks

These considerations help you spot potential tax traps, environmental hurdles, and pricing pitfalls, so your Solo 401k land investment aligns with both IRS rules and market reality.

IRS Rules, UBIT & UDFI

Even though most retirement-account income is sheltered from tax, certain activities may trigger taxes inside your Solo 401k:

✅ Unrelated Business Taxable Income (UBTI):  If the Solo 401k operates a business on the land (e.g., farming or commercial activity), that income may be subject to UBTI.

✅ Unrelated Debt-Financed Income (UDFI): If you use a non-recourse loan to buy the land, your Solo 401k is generally exempt under IRC 514(c)(9)—so long as the loan meets IRS standards.

📝 Tip: Always confirm with your custodian that any financing structure you use falls within these IRS exceptions.

Environmental, Zoning, & Permitting Due Diligence

Before purchasing a raw land, do your research to avoid surprise costs or restrictions:

✅ Wetlands & Waterways: Use the National Wetlands Inventory’s Wetlands Mapper to identify protected areas.

✅ Zoning & Land-Use Rules: Contact your local planning department to verify permitted uses, setback requirements, and any overlay districts.

✅ Permits & Environmental Reports: Order a Phase I environmental site assessment if you suspect contamination, and secure all necessary building or access permits before finalizing the deal.

Valuation, Appraisal, & Market Trends

Getting the right price—and understanding future potential—is essential to avoid overpaying:

✅ Independent Appraisal: Hire a qualified appraiser to determine the property’s fair market value each year.

✅ USDA Farmland Values: U.S. farmland averaged $4,170 per acre in 2024, up 5.0 percent over 2023 (2.5 percent after inflation) and showing a 5.1 percent compound annual growth rate since 2018.

✅ Regional & Sector Trends: Track local farm-income forecasts and commodity markets. Land values can vary widely by region and underlying farm economics.

How to Buy Raw Land Using Your Solo 401k

Step 1: Set Up Your Solo 401k and Get Trustee Approval

First, ensure your Solo 401k is held with a custodian that allows real estate investments. For sole proprietors, IRS Publication 560 states that starting with 2023 tax returns, the plan must be adopted by the un-extended filing deadline (typically April 15).

Provide your trustee with the purchase agreement and proof that your Solo 401k holds sufficient funds or financing commitment. The trustee must approve the transaction before you proceed—and only the plan, not you personally, should be listed on any legal documents.

Step 2: Choose Your Funding Method

You can either use available funds in your Solo 401k or apply for a non-recourse loan.

In most cases, Solo 401k plans won’t owe taxes on income from non-recourse financing when buying real estate, thanks to a specific exemption under IRC Section 514(c)(9). This means you can potentially borrow without triggering UDFI taxes, as long as the loan meets IRS requirements.

Step 3: Complete Title Search, Closing, & Records

Work with a title company to confirm ownership and handle closing in your plan’s name. The deed should list your Solo 401k as the owner—not you as an individual. 

After the deal is done, retain all key records:

✅ Purchase agreement

✅ Closing statement

✅ Loan documents (if applicable)

✅ Trustee approvals

These records are important if the IRS ever asks for proof that the transaction followed plan rules. 

How to Manage Your Land Investment

Once you’ve acquired the land, here’s how to manage it effectively and eventually turn it back into retirement income (without surprises).

Ongoing Holding Costs: Taxes, Insurance & Maintenance

Your Solo 401k must pay all ordinary expenses from plan assets—no personal checks. Common costs include:

✅ Property taxes

✅ Insurance premiums

✅ General upkeep (e.g., fencing, weed control, etc.)

Note that these costs don’t create taxable events, but they reduce the plan’s available cash, so it’s wise to budget for them in advance

Developing or Leasing vs. Long-Term Hold

Leasing raw land generally stays within the “rent from real property” exclusion under IRC 512(b)(3). Therefore, rental income is generally not considered unrelated business taxable income (UBTI).

✏️ Hypothetical Example: If you add improvements like roads or utilities, or provide services (e.g., guided tours), it may trigger UBTI or debt-financed income rules under IRC 514. In that case, your Solo 401k could then be required to file Form 990-T and pay tax on some of the income.

Selling Land & Taking Distributions (Tax Implications)

When you sell the property, the profits go back into your Solo 401k and remain tax deferred. To use those funds personally, you’ll need to take a distribution, which is generally taxed as ordinary income on the full amount, including both earnings and your original investment, unless you’re using a Roth subaccount.

Distributions usually cannot begin until you retire, pass away, become disabled, or leave self-employment. Required minimum distributions (RMDs) start at age 73.

Wrapping It Up

Investing in raw land through your Solo 401k could potentially add diversification and tax-deferred growth to your retirement mix. Before diving in, make sure you:

✅ Understand plan rules, UBIT and UDFI implications

✅ Budget for ongoing costs like taxes, insurance, and maintenance

✅ Follow a clear purchase process—from trustee approval to deed transfer

✅ Plan your exit, whether by sale, lease, or development

Next, review your Solo 401k custodian’s real estate investment requirements. Then research potential properties with a close eye on zoning, market trends, and financing options. 

If you’re unsure, consider consulting a qualified tax or legal professional to tailor this strategy to your situation and make sure it works for your long-term retirement goals.

📌 Want to learn more? Check out our other articles on Solo 401k tips and investment ideas

---

Disclaimer:

The Carry Learning Center is operated by The Vibes Company Inc. (“Vibes”) and contains generalized educational content about personal finance topics. While Vibes provides educational content and technology services, all investment advisory services discussed on this website are provided exclusively through its wholly-owned subsidiary, Carry Advisors LLC (“Carry Advisors”), an SEC registered investment adviser. The information contained on the Carry Learning Center should not be construed as personalized investment advice and should not be considered as a solicitation to buy or sell any security or engage in a particular investment, accounting, tax or legal strategy. Vibes is not providing tax, legal, accounting, or investment advice. You should consult with qualified tax, legal, accounting, and investment professionals regarding your specific situation.

The accounts, strategies and/or investments discussed in this material may not be suitable for all investors. All investments involve the risk of loss, and past performance does not guarantee future results. Investment growth or profit is never a guarantee. All statements and opinions included on the Carry Learning Center are intended to be current as of the date of publication but are subject to change without notice.

To access investment advisory services through Carry Advisors, you must be a client of Vibes on an eligible membership plan. For more information about Carry Advisors’ investment advisory services, please see our Form [ADV Part 2A] (https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=916200) brochure and [Form CRS] (https://reports.adviserinfo.sec.gov/crs/crs_323620.pdf) or through the SEC’s website at [www.adviserinfo.sec.gov] (http://www.adviserinfo.sec.gov/).