Terminating a plan with a farm as an asset?

[Lori H]

A ps plan that had 2 participants, now 1, has the gist of its assets wrapped up in a farm valued at appx. $400,000. In order for the plan to terminate, he would have to find a buyer, which could be him as the sole participant or someone else. I know an IRA can own real estate, but could he roll over the value of the farm into an IRA?

[Lou S.]

Forgeting the non-discimination issue on availabilty of distribution option for a momment yes you could assuming you found an IRA trustee that would hold such a non-traditional asset.

[My 2 cents]

1. Why would anyone invest pension plan assets in a farm?

2. It would be a prohibited transaction for an investment to be made in order to benefit any party in interest. Why is this so hard to understand? No, it isn't "your money" when it is being held in a qualified pension plan.

3. If he (excuse the expression, which is not intended that way) bought the farm, wouldn't that also be a prohibited transaction? Plan assets should not be sold to parties in interest.

[Belgarath]

While unusual, certainly not unheard of. Often the land is the primary consideration, and if in an area of growth, for example, it can appreciate DRAMATICALLY. So it is very possible that it was a legitimate arms-length transaction. Also very possible it wasn't...

[ESOP Guy]

I think it can be done-- put the asset in an IRA but I would want an attorney look at it because the cost of a PT is high.

The other issue is if the farm is income producing has the plan been filing the Unrelated Business Income Tax (UBIT) return?

I believe the IRA would have to also file a UBIT tax return.

Since they are thinking they could have a farm without paying taxes on the farm income this UBIT will come as a real surprise.

[My 2 cents]

While unusual, certainly not unheard of. Often the land is the primary consideration, and if in an area of growth, for example, it can appreciate DRAMATICALLY. So it is very possible that it was a legitimate arms-length transaction. Also very possible it wasn't...

What is the difference between a farm and underused rural land? Development plans! Farms don't appreciate DRAMATICALLY (at least until they stop being farms).

[John Feldt ERPA CPC QPA]

If he wants that farm or was alreadying farming it, he should have used his pocket money, not the plan money.

"Farms don't appreciate DRAMATICALLY (at least until they stop being farms)." Hmmm.

Iowa farmland reached an average price of $8,716 per acre in 2013. Compare to the year 2000: Average was $1,857 per acre. Up 467% in 13 years. In Adair county, the average price per acre went from $1,189 per acre in 2000 to $6,884 per acre in 2013. Up 579% in 13 years. Not that I've been paying any attention to this. Seems a bit dramatic to me perhaps, but I'm no drama expert.

[My 2 cents]

Obviously, I am no expert on real estate investments (especially in Iowa)!