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Hello and thank you for your question.
IRC (internal revenue code) section 4975 places a tax on prohibited transactions with respect to qualified pension, etc., plans.
The definition of a prohibited transaction may be found in the above links.
The penalties for such a transaction may be found as well.
In short, the sale or exchange, leasing, rental, lending, other credit extension, furnishing of goods, services, etc., or "receipt of any consideration for his own personal account" of a plan fidiciary, disqualified person with, to, from, etc., a plan, may be a prohibited transaction.... See IRC 4975(c)...
When structuring any sort of arrangement that involves buying property in self-directed retirement accounts, etc., one has to be very careful. Any personal use of the real estate being purchased, now or in the future, could lead to some consequences.
The management of the property has to be considered.
In a nutshell, there are many more a simple ways to hold real estate... perhaps a publically traded real estate option?
In order for this to be a good idea, you have to really have things planed out, generally speaking.
This may have answered your question. If there is something else that you need clarification for though, please let me know.
Again, thank you for your question!
I realize this can be confusing as to what a proper set up can be. Initially, yes, people are allowed to purchase real estate within a retirement account. You shouldn't purchase the real estate from yourself or any other person (entity) that would, or in a transaction the nature of which would, violate the prohibited transaction rules. If, from there, you can manage the property effectively without violating the prohibited transaction rules, and refrain from any personal use of the property, you may be in business. That is why this situation takes careful planning.
9 times out of 10, no, I do not suggest this (ie, roughly speaking). I think it is very complicated for a rental property set up. If done appropriately, it may be a good idea. I wish I could tell you what to do, but that would be incredibly irresponsible over JustAnswers with respect to an issue like this. I will clarify the rules and your questions, so don't ever be shy there!
Thank you again for your question!!