Can I Invest in My Own Business With 401K Money?

[Tom Scott]

Hello all,

As part of my Roth 401K plan I am able to use a portion of my account balance as a self directed investment account. I know I am able to invest that money directly in real estate with the caveat that all profits go back into the retirement account as earnings. This is of course good, but then all my profits are tied up in the investment account and I can't access without penalty. Would it be possible to invest this 401K money in my rehabbing company which will then pay a set interest rate to the 401K. I would essentially be my own hard money lender.

So, am I crazy or is this illegal? I'm guessing if there is a legal question it would be due to my proximity to the investment?

Tom