Timberland Investing With a Self-Directed IRA
Investing in timberland is a unique opportunity. Investors with a self-directed IRA or Solo 401(k) who are seeking a means to diversify their holdings might find a place in their portfolio for timber holdings.
Some of the things that make timber investing appealing include solid returns, a hedge against inflation, and relatively low risk and volatility.
Large institutional investors like pension funds and university endowments have invested billions of dollars into millions of acres of forest lands. Should your self-directed retirement plan follow their example?
Solid Investment Characteristics
Over the last 20 years, returns for timber as an entire asset class have been consistent with those produced by the S&P 500, in the 10-12% range.
Timber is only about half as volatile as equities, however. According to the National Council of Real Estate Investment Fiduciaries Timberland Index, volatility is close to that of 10-year treasury bonds.
Historical data also shows a positive correlation between timberland returns and inflation. This makes timber a great hedge against loss of portfolio value during times of inflation.
While positively correlated to inflation, timber tends to be counter-cyclical to financial markets. This makes timber a great diversification tool.
Demand for timber is global. As large sections of the developing world in Asia and South America modernize and expand in population, the need for timber is only likely to increase.
An Always Growing Asset
An ounce of gold is always an ounce of gold.
Trees grow.
While the value of a board foot of lumber may change over time, if your IRA’s forest tract continues to add more board feet each year, value is being created.
It can be nice to know even in a market downswing that your investment is experiencing a form of growth.
Multiple Income Paths
Money can be made several ways with timber land investments.
The land itself can appreciate. The land value for remote properties typically does not increase dramatically. Properties located in a path of growth or where land use is transitioning can see significant gains, however. It is possible that the land itself may gain more in value than the income potential of the timber if it can be turned into subdivisions or a golf course.
The value of a forest can increase purely due to market demand for lumber. During construction booms the cost of softwood timber tends to rise. Your IRA could sell a property during such a cycle at a profit without needing to wait to harvest the lumber.
Another way a forest property can increase in value is through the maturing of trees. The additional volume of lumber available is only one way growth has a positive impact. With many kinds of trees, larger specimens have a higher value because they can be used to produce more marketable finished products. Small trees are generally only good for pulp and paper products. Medium trees can be used for small dimension lumber. Larger trees that can be used to make large sawtimber have the highest value.
In some locations, your IRA may be able to offer hunting leases or generate rental income by some other means.
Your IRA or Solo 401(k) can capitalize on an investment by having the timber harvested or simply by selling the plot to another party after it has increased in value through appreciation and timber growth.
Risk Factors
To be productive, a reasonably sized forest of at least 20 acres is typically required. Larger parcels will perform better due to the economy of scale they provide. Since non-recourse loans to purchase timber land are not widely available, the cost of entry can be high.
A long time horizon is required when investing in timber.
Timber land is also fairly illiquid. Time on market when selling can often range from 6 to 18 months, depending on the location.
Climate and environmental threats merit consideration as well. Many forests are stressed from drought and insect infestations.
Buying Timber Property
Special expertise is required when considering an investment in timberland. Unless you happen to be a licensed forester, it is probably best to work with experienced professionals who know both the local land market and timber economy.
The most productive properties will be located near one or more mills that deal in the type of forest product being grown. A property that will be easier to log in the future will be desirable. Take care to ensure that the land itself has quality soil and adequate rainfall to be productive.
Of course, the price also needs to be right. Like most other forms of real estate, you make money when you buy.
Managing Timberland
Just like a backyard garden, a forest needs to be properly tended to produce the best harvest. Working with a certified forester. They can help ensure the trees on your retirement plans land reach maximum value through proper thinning, selective harvesting, and attention to insect threats.
Hands-Off Investing is Required
Many investors are drawn to timberland for the non-monetary benefits such holdings provide. Being able to camp, hunt, fish, or ride horses in your own private forest has a huge emotional appeal.
Unfortunately, when your self-directed IRA or Solo 401(k) owns land, you cannot use that land personally.
The IRS prohibitions against self-dealing also restrict you from acting as forester and actively maintaining or harvesting the timber.
Because there can be no direct or indirect benefit between and IRA and the account holder, we strongly discourage using your IRA to acquire timberland adjacent to any residential property you own personally.
Selling Timber
There are several methods of selling timber. When investing using an IRA or 401(k) retirement plan, it is important to choose a sales model that would result in capital gains treatment for a non-retirement investor. Gains will be fully tax-sheltered in these cases, which include:
Outright sale – where the buyer pays a fixed price prior to harvest.
Pay-as-cut – where a unit price is agreed to prior to any cutting.
If the landowner harvests trees and then sells that cut timber to a mill, this is considered earned income. A IRA that sells on this basis will be subject to tax on Unrelated Business Taxable Income (UBTI).
UBTI will also apply in the case of a percentage sale, where the landowner is paid a percentage of the eventual sale value as determined by a receiving mill after trees have been cut.
A Big Commitment
Timber investing is not for every portfolio, to be sure. The high cost of entry, long time horizon, and lack of liquidity limit access to those with significant resources and patience.
The relative security, low risk, and quality returns associated with timber investments can be appealing in the right circumstances.
Timber is certainly unique in that you can actually watch your IRA investment grow over time. (Sorry, couldn’t resist.)
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Quick answers to common questions
We’ll take you through a simple, step by step process designed to put your investment future into your own hands…immediately. Everything is handled on a turn-key basis. You take 100% control of your Retirement funds legally and without a taxable distribution.
YES! In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) making IRA, 401(k) and other retirement plans possible. Only two types of investments are excluded under ERISA and IRS Codes: Life Insurance Contracts and Collectibles (art, jewelry, etc.). Everything else is fair game. IRS CodeSec. 401 IRC 408(a) (3)
It’s actually pretty simple. Early on, regulators let the securities industry take the lead in educating the public about retirement accounts. Naturally, brokers and banks promoted stocks, bonds, and mutual funds—giving the impression that those were the only allowed investments. That was never true... and still isn’t. You can probably guess why they kept the rest under wraps.
It is possible to use funds from most types of retirement accounts:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Keogh
- 401(k)
- 403(b)
- Profit Sharing Plans
- Qualified Annuities
- Money Purchase Plans
- and many more.
It must be noted that most employer sponsored plans such as a 401(k) will not allow you to roll youraccount into a new Self-Directed IRA plan while you are still employed. However, some employers will allow you to roll a portion of your funds. The only way to be completely sure whether your funds are eligible for a rollover is by contacting your current 401(k) provider.
A Solo 401(k) requires a sponsoring employer in the format of an owner-only business. If you have a for-profit business activity – whether as your main income or as a side venture – and have no full-time employees other than potentially your spouse, your business may qualify. The business may be a sole-proprietorship, LLC, corporation or other entity type.
A self-directed retirement plan is a type of IRA or 401(k) that gives you greater control over how your retirement funds are invested. Unlike traditional accounts held at banks or brokerage firms that limit you to stocks, bonds, and mutual funds, self-directed plans allow you to invest in a wide range of alternative assets including real estate, private businesses, precious metals, cryptocurrency, and more.
These plans still follow the same IRS rules and maintain the same tax-deferred or tax-free benefits as conventional retirement accounts. The difference is simply in how and where you choose to invest.
No. Moving to a self-directed IRA or Solo 401(k) does not trigger any taxes, as long as your funds are eligible for rollover.
Self-directed retirement plans maintain the same tax-advantaged status as traditional plans offered by banks or brokerage firms. The key difference is flexibility—our plans are designed to give you greater control and allow for a wider range of alternative investments beyond stocks, bonds, and mutual funds.
A prohibited transaction is any action between your retirement plan and a disqualified person that violates IRS rules and can lead to serious tax consequences. Under IRS Code 4975(c)(1), prohibited transactions include:
- Selling or leasing property between your plan and a disqualified person Example: Your IRA cannot purchase a property you already own.
- Lending money or extending credit between the plan and a disqualified person Example: You cannot personally guarantee a loan your IRA uses to buy real estate.
- Providing goods or services between your plan and a disqualified person Example: You can’t use your personal furniture to furnish a rental property owned by your IRA.
- Using plan income or assets for the benefit of a disqualified person Example: Your IRA cannot buy a vacation home that you or your family use.
- Self-dealing by a fiduciary (using plan assets for their own benefit) Example: Your CPA shouldn't loan your IRA money if they’re advising the plan.
- Receiving personal benefit from a deal involving your IRA's assets Example: You can’t pay yourself from profits your IRA earns on a rental.
If a transaction doesn’t clearly fall within the allowed guidelines, the IRS or Department of Labor may review the situation to determine if it qualifies as a prohibited transaction.
Disqualified persons are individuals or entities that are prohibited from engaging in certain transactions with your IRA or 401(k). Doing so could trigger a prohibited transaction, which may result in taxes and penalties.
Here’s who is considered a disqualified person:
- You (the account holder)
- Your spouse
- Your parents, grandparents, and other ancestors
- Your children, grandchildren, and their spouses
- Any advisor or fiduciary to the plan
- Any business or entity owned 50% or more by you or another disqualified person, or where you have decision-making authority
These rules exist to prevent self-dealing and ensure your retirement plan remains in compliance with IRS regulations.
(Reference: IRC 4975)
Understanding and following these rules can be tricky, but it’s very doable. The best way to stay compliant is to work with professionals who specialize in self-directed retirement plans. They can help you navigate IRS guidelines and avoid prohibited transactions.
If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA’s assets on the first day of the year in which the prohibited transaction occurred.
Yes. While self-directed retirement plans allow for a wide range of investments, there are a few important restrictions.
You cannot invest in collectibles or life insurance contracts, and you must avoid prohibited transactions—activities that benefit you personally rather than the retirement plan. These include things like buying or selling property to yourself or family members, using plan assets for personal gain, or self-dealing in any way.
Violating these rules could cause your entire IRA to lose its tax-advantaged status. To protect your account, it’s essential to work with professionals who understand IRS regulations and can help you stay compliant.
This is a common misconception. In many cases, professionals may simply be unfamiliar with self-directed retirement plans, as they fall outside their usual scope of work. CPAs and tax preparers are trained to file taxes, not necessarily to advise on alternative retirement strategies. Financial advisors and brokers often work for firms that focus on traditional investments like stocks and mutual funds—and may not benefit from or support alternative options like real estate or private lending.
Self-directed retirement investing is legal under IRS rules—but like any specialized area, it requires working with professionals who understand how it works.
The IRS has rules in place to make sure your IRA is used only for the exclusive benefit of the retirement account—not for personal gain or to help family members. These rules can get complicated because there are many ways a conflict of interest can occur, even unintentionally.
For example, if your IRA buys a house and rents it to your mother, you might be reluctant to evict her if she stops paying rent. That emotional connection creates a conflict between what’s best for your IRA and your personal relationships, something the IRS aims to prevent.
These rules help ensure your retirement account stays compliant and protected. (See IRC 408)
Yes. Most tax-deferred retirement accounts—such as Traditional IRAs, old 401(k)s, 403(b)s, and TSPs—can be rolled over into a self-directed IRA or Solo 401(k), depending on your eligibility. Roth IRAs cannot be rolled into these accounts.
You can contribute directly from earned income, subject to annual IRS contribution limits. The method and amount depend on the type of plan you have (e.g., Solo 401(k) vs. IRA).
To take a distribution, you'll request funds through your custodian or plan administrator. Distributions may be taxable depending on your account type and age. Early withdrawals may be subject to penalties.
For 2025, the Solo 401(k) max contribution limit is $81,250 if age 60-63, $77,500 if age 50-59 or 69+, and $70,000 if under 50. Traditional and Roth IRAs have a limit of $7,000 ($8,000 if age 50+). Limits are subject to IRS adjustments.
Yes. IRA contributions are typically due by your personal tax filing deadline (e.g., April 15). Solo 401(k) contributions follow your business tax filing deadline, including extensions.
IRS reporting requirements vary depending on the type of self-directed retirement plan you have. Here’s a quick breakdown of what you need to know
Please note: Our team can help you understand what’s required for your specific account, but we don’t provide tax or legal advice. We always recommend working with a qualified tax professional to ensure full IRS compliance.
Self-Directed IRA (Traditional or Roth)
- Form 5498 – Filed by your custodian each year to report contributions, rollovers, and the fair market value (FMV) of your account.
- Form 1099-R – Issued if you take a distribution or move funds out of your IRA.
- Annual Valuation – You'll need to provide updated FMV for any alternative assets held in the account, such as real estate or private placements.
Solo 401(k)
- Form 5500-EZ – Required if your plan assets exceed $250,000 as of year-end. Must be filed annually by the plan participant.
- Form 1099-R – Required if you take a distribution or roll funds out of the plan.
- Contribution Tracking – Keep records of employee and employer contributions. These are not filed with the IRS but may be needed for tax reporting or audits.
SEP IRA
- Form 5498 – Filed by your custodian to report contributions and FMV.
- Form 1099-R – Filed by your custodian. Issued for any distributions.
- Employer Contributions – Must be reported on your business tax return (and on employee W-2s, if applicable).
Health Savings Account (HSA)
- Form 5498-SA – Filed by your HSA custodian to report contributions.
- Form 1099-SA – Filed by your HAS custodian. Issued for any distributions.
- Form 8889 – Must be included with your personal tax return to report contributions, distributions, and how funds were used.
