Getting started investing using my retirement funds

[Chris Libby]

Hello - I've been looking to get started in the real estate investment business for a while now.  My goal is to create a cash-flow generating portfolio for my family and break free of the "corporate slavery" we deal with daily.  I have an idea on how to make this work initially but would like some insight.

We have a sizeable amount saved in my 401k from my previous employer, plus we each have a small pension from a couple closed out plans.  I would like to convert this into either a SDI or possibly 401(a) pension plan and use that plan to mortgage the investment - basically be my own bank.  The investment would be repaid using a standard mortgage promissory note at whatever interest rate is acceptable to generate income for the SDI/401(a), but the income from the property would be my cash flow.  This prevents me from losing a sizable portion of my 401k due to taxes if I cashed out now, and allows me to leverage money that is currently sitting in stocks/bonds/mutual funds.  I don't think I would throw all of this into real estate but instead stay diversified across the board.  

This seems like a smart plan on paper - but would this type of double-dipping be allowed by the IRS?  Can we bring other family members into the fold later if they wanted to get involved?

[Brian Eastman]

@Chris Libby

You may not do what you propose.

While a self-directed IRA is capable of investing in real estate and holding mortgages, the IRA may not transact with you or close family viewed as "disqualified parties" by the IRS.

If the IRA is investing in real estate, it is all about diversification for the IRA. The IRA owns the asset, pays the expenses and receives the income.