Self-directed IRA companies started to become more popular more than a dozen years ago when investors began using them to help finance the purchase investment real estate.
And why not? When you use a self-directed IRA, you’re essentially lending yourself the money to pay for the real estate. The proceeds from the investment property (that is, the income the property generates) go back into the account to repay the loan and any expenses. Over time, as the loan is paid down, profits will increase, but those must stay in the IRA as well until you withdraw them. At that time, you’ll owe ordinary income on your withdrawals, just as you would for withdrawals from any other qualified retirement account.
via Rule with self-directed IRAs: Investor really beware – Chicago Tribune.