A LLC with 3 members currently are holders of a reverse mortgage. One of the members wishes to sell his interest for basis in the LLC to his self directed 401(k) so then the seld directed 401(k) will own the investment. Is this type of transaction allowed? Common sense tells me no. I would appreicate any thoughts and comments. Thanks

He absolutely cannot sell his LLC interest to his plan. It is a prohibited transaction.

Prohibited transactions are discussed...
IRS Pub 560, starting at page 18: http://www.irs.gov/pub/irs-pdf/p560.pdf
On this IRS FAQ webpage: http://www.irs.gov/retirement/article/0,,id=163722,00.html