Author Topic: LendingClub IRA Liquidation Strategy (Minimize Cost)  (Read 319 times)

Outside the Box

  • 5 O'Clock Shadow
  • *
  • Posts: 16
LendingClub IRA Liquidation Strategy (Minimize Cost)
« on: July 14, 2017, 04:49:43 PM »
Back in 2010, I had a small-ish 401k at a previous company that I rolled into a Roth IRA with LendingClub. I was making much less then, so I figured it was a good time to pay the taxes, since the IRS let you carry the rollover for 2 years at the time, which I did.

I have been getting help from you all on my total portfolio, and part of that plan is to reduce my LendingClub balance to zero.

I had a little over $550 in available cash which I transferred to my IRA custodian, CamaPlan, today. I looked at the fee disclosures on CamaPlan to figure out how to get my money for free rolled into Vanguard. They charge $75 to do any rollover. There is no free option, like check vs Wire.

If I did this on this small balance, I'd be taking a 14% haircut. If I wait to build up a balance where the fee might make more sense, I'm missing out on the market by being in cash. This is absolutely nuts!

I explored doing a distribution and then putting it in Vanguard Roth IRA within 60 days, but this can only be done once per 12-month period, not per calendar year. Plus it's a limitation across all IRAs (I'm not sure if this applies to 401k distributions as well).

So, here's my idea/plan, which I am submitting for peer review:
  • Sign up for the FolioFN trading platform. (Application submitted)
  • List 100% of my Issued & Current notes using LendingRobot once I am approved. 97% of my notes are Issued & Current.
  • List the Grace Period/late notes using percents [urlhttps://forum.mrmoneymustache.com/investor-alley/lending-club-time-to-panic/msg1587934/#msg1587934]similar to coloradojoe[/url].
  • Once the account is 100% liquidated, transfer cash to CamaPlan.
  • Do ACH distribution, which costs $5 from CamaPlan to my bank account.
  • Immediately deposit as a rollover/transfer to Vanguard (I'm not sure on their forms for this) within 60 days.
That's it! Does anyone spot any problems with this?

I definitely don't want to pay $75 for the privilege of getting my money out, and certainly not each time. The $5 one time should be good, as long as I don't need any tIRA distributions within 12 months.

Outside the Box

  • 5 O'Clock Shadow
  • *
  • Posts: 16
Re: LendingClub IRA Liquidation Strategy (Minimize Cost)
« Reply #1 on: July 18, 2017, 10:23:44 AM »
Follow up points I've found out, since I got no replies initially:
  • LendingRobot disabled peer-to-peer lending sales with no ETA for restoration.
  • I started shopping on Folio like a buyer, and there are good notes on there at a significant discount.
  • There are a lot of bad notes for a REALLY significant discount, as in close to giving them away.
  • I have begun liquidating, and it's painful and slow to adjust those basis points to get the notes sold.
  • You get flooded with emails from Folio daily when the notes sell and they settle at the same time.
  • Notes you have up for sale will get yanked down when a payment starts processing by the original borrower, I'm guessing because that may invalidate the criteria you used for sale (days since payment, outstanding principal, outstanding accrued interest, etc).
  • I have at least one that is unavailable for listing due to pending bankruptcy. Does this mean I can't close my IRA with CamaPlan until that person's bankruptcy is over?

Long story short, I regret ever investing in Lending Club. I think I turned $12k (mainly $10k plus $2k several years later) into $17k over 7 years. Not a great return, but I was risk averse on the platform. I mainly invested in only people in stable jobs (or those who lied about it) only for debt consolidation and home improvement.

The $17k is optimistic on their part since they play fast and loose with "31-120 days late". 120 days? Really? It should be charged off after 60 IMO. Perhaps sooner.

I'm losing 1% on each sale plus the discount on the notes themselves. I'm hoping I don't lose too much principal. I'm guessing I'll end up losing a few hundred in principal to liquidate, but I'm glad I found this out now, rather than later.

I didn't realize how illiquid my IRA with them was and the exit fees their custodians charge. I talked to LC about this and they didn't gaf at all. "That's their fees, not ours." - "But I signed up for them through you." - "That's their fees."

I guess this is why I diversify, but I'm willing to take a haircut to get out ASAP at this point. LC seems like it would be mostly fine in a taxable account if that's what you want (but the dividends screw you on yearly reportable income, unless you want that, in ER). The way I had it though, it was pretty much impossible to rebalance except by contributions.

I'm glad it is/was only 4.7% of my portfolio. The sooner I'm out, the better.

zombiehunter

  • 5 O'Clock Shadow
  • *
  • Posts: 73
Re: LendingClub IRA Liquidation Strategy (Minimize Cost)
« Reply #2 on: July 18, 2017, 03:36:59 PM »
I am going through a similar process, albeit with one key difference.  I didn't want the cash to sit in the LC account while I slowly sell the notes, so I transfer cash as it becomes available from the LC account to a TD Ameritrade account, which is another product that is offered by this crappy IRA custodian (SD IRA).  From there, it can be invested in commission Free ETFs including Vanguard funds.

The plan is that once the process is complete there will be a zero balance in the LC account with all funds held in TDA.  Then it's a simple transfer to Vanguard directly, albeit with SD IRA's $150 termination fee.

This process is slightly more of a pain than just selling LC notes and withdrawing, but hopefully worth it -- in fact, if VTI goes down over the next 6 months, it might actually have been preferable to liquidate the notes to cash to transfer to Vanguard, rather than sitting it in VTI for the interim.  I began this process around June 1, and so far approx $2000 of my total $6000 LC balance is moved over to TDA.

However, LendingRobot disabling the Sell feature has really slowed down the process.  Notes can be liquidated fairly painlessly with their app, but doing so manually really sucks. 

Outside the Box

  • 5 O'Clock Shadow
  • *
  • Posts: 16
Re: LendingClub IRA Liquidation Strategy (Minimize Cost)
« Reply #3 on: July 19, 2017, 11:25:56 AM »
What do I do about notes that can't be sold due to "Sorry, this note cannot be sold at this time due to pending bankruptcy." messages?

Will I not be able to close my IRA because some borrowers are in bankruptcy? I have to wait for their court proceedings to complete before I can completely close my IRA?

Again, I wish I'd never done this in retrospect.

zombiehunter

  • 5 O'Clock Shadow
  • *
  • Posts: 73
Re: LendingClub IRA Liquidation Strategy (Minimize Cost)
« Reply #4 on: July 19, 2017, 01:04:42 PM »
Dunno, have you called LC to ask?

Outside the Box

  • 5 O'Clock Shadow
  • *
  • Posts: 16
Re: LendingClub IRA Liquidation Strategy (Minimize Cost)
« Reply #5 on: July 19, 2017, 02:03:27 PM »
Folio handles secondary market sales, not LC. I won't be worrying about it that much until I've finished liquidating non-bankrupt notes.

I would hope I can just release/abandon those notes at that point. If they're in bankruptcy, it's likely those notes are worth $0 to anyone, since they're going to get charged off 100% most likely (unsecured creditors).