Investing in Water Through a Self-Directed IRA

Published on August 12, 2025

Water, water everywhere. Is it in your self-directed IRA?

The demand for water is ever-increasing, especially as climate change is leading to more significant periods of drought in more regions. In this article, we provide an overview of how investors can include this natural resource as an alternative asset within a SDIRA.

Why invest in water through a SDIRA

Some investors who want to take an activist position with their investments or develop more retirement portfolio diversity. They can put their money toward water conservation or water purification technologies, or invest in an endeavor that aims to increase access to clean drinking water to marginalized areas or rebuild water infrastructure.

Other self-directed investors see this natural resource as a true commodity that is becoming scarce and hence, more valuable to entities that need it.

Ways to invest in water

There are several ways in which to invest in water: as a commodity or through water rights.

Investments may include futures contracts or water-related assets through index funds, securities, or ETFs that invest in water resources or technologies. Account owners can also invest directly in irrigated farmland which obviously uses (and transports) water for food production. Intellectual property investments such as patents in water reuse or desalinization projects are another route.

Water rights are another.

What are water rights?

Water rights enable property owners to access and use water legally from a specified source; in short, they regulate how public and private landowners use that water and they protect the fair use of water. Generally, water rights authorize property owners to use, sell, divert, or manage a water supply or source. That source may be groundwater as from an underground aquifer or surface waters like lakes, wetlands, and streams.

There are two principal types of water rights in the United States:

1. Riparian rights regarding flowing bodies of water that touches a property’s borders; these give a landowner access to and usage of rivers and streams. Property owners can use their water for domestic needs (such as bathing, gardening, drinking, or for animals), but cannot obstruct the natural flow of water for other riparian owners.

• Littoral rights are another form of water rights that guarantee access to non-flowing waters (lakes, seas, and oceans).

2. Prior-appropriation water rights, which are granted by a state and permit a party to divert a specified amount of water for an approved, beneficial use (such as agriculture).

Generating income from water rights

Once SDIRA has invested in water rights, it generates income by charging entities to access that water.

The river water flowing on your property or the lake on your land can be leased to a local business that needs it for its operation. Think boating or fishing businesses, breweries, factories, even utility companies that need water to generate electricity.

Water rights can be complex

Water rights vary greatly by location—between states and by region. Besides riparian and prior-appropriation rights, there are other types of water rights in some states and not others, and the prevailing laws differ between eastern states and western states. For our clients who are interested in learning more, a list of 12 diverse water rights in the U.S. is here.

In addition, municipalities can enforce their own provisions and certain federal legislation may add complexity. Therefore (as with any alternative asset), researching and understanding them thoroughly before making the investment is crucial.

Common ways to invest in water—and generate income for a self-directed IRA

The earth we inhabit offers many types of real estate investments and within the real estate realm there are opportunities to invest in water. We mentioned investing in water-rich farmland above. A self-directed IRA can also buy land with existing water rights. This is more common in the western United States, where having senior water rights (especially in areas prone to drought) is crucial. When demand for available water rises, the property owner (in this case, the IRA) generates income by selling or leasing water rights to others who need this valuable resource (such as municipalities or farmers).

Other ways to include water and water-related investments in a SDIRA include:

• Purchasing or leasing water rights from a landowner or farmer near areas with high demand for water, such as urban or industrial areas and reselling the access to water
• Promissory notes used to fund infrastructure projects such as wastewater treatment plants, new pipelines, or dams
• Investment in companies involved in the construction and maintenance of water infrastructure
• Private equity funding in startups or early-stage businesses that focus on water-saving food production methods, such as hydroponics or invest in technologies to conserve water

Open a self-directed IRA at Next Generation to get started

Whether you are investing in water rights, water-related assets, or any other type of alternative asset allowed through self-direction, the team at Next Generation is here to guide you through the process. We offer client education through webinars and white papers, and our team is available to answer your questions about this retirement wealth-building strategy at NewAccounts@NextGenerationTrust.com or 888.857.8058.