Author Topic: Lending Club - Tax Implications for Someone in Retirement?  (Read 2138 times)

Acg

  • Stubble
  • **
  • Posts: 102
Lending Club - Tax Implications for Someone in Retirement?
« on: April 13, 2013, 10:18:30 AM »
I'm trying to help someone out that is actually of "traditional" retirement age and I was hoping you could help me out.  Like I said, he's a bit older and is totally invested in bonds (munis and taxable) at this point of his life but I've realized that the music is going to stop/has already stopped so I'm trying to think of different income solutions.  Lending Club seems like a great solution as it would provide him with a steady source of income. 

My only question is regarding taxes because this would be held in a taxable account and from what I understand wouldn't be treated as a simple capital gain but as ordinary income instead, correct?  If he's already in retirement, and doesn't have any income would this actually be a positive for him since his tax rate would be only 10%?

Also, I'm not sure how this works but would it make sense for him to open an IRA at this point?  If so, is it too late to open an account and get in a 2012 contribution with the deadline coming on Monday?

the fixer

  • Handlebar Stache
  • *****
  • Posts: 1037
  • Location: Seattle, WA
Re: Lending Club - Tax Implications for Someone in Retirement?
« Reply #1 on: April 13, 2013, 02:43:27 PM »
Does he have any IRAs at all right now? It would probably be a better idea to transfer some money from an existing IRA. The benefits of an IRA for someone nearing retirement aren't that great.

You may also want to consider the risk of Lending Club versus the risk of the stock market. At least at a high level, you can consider the two investments to have comparable levels of risk. If he's uncomfortable investing in the stock market, he shouldn't be using Lending Club as a substitute; it would be better if you could convince him of the benefits of diversifying at least a little into stocks. For instance, see this video on how adding a little stock to an all-bond portfolio actually reduces risk while increasing return: http://financinglife.org/short-how-to-videos/diversify-stocks-and-bonds/

Acg

  • Stubble
  • **
  • Posts: 102
Re: Lending Club - Tax Implications for Someone in Retirement?
« Reply #2 on: April 13, 2013, 03:12:54 PM »
thanks.  The problem is that he needs the monthly income payments so an equity fund wouldn't really cut it for him.

ch12

  • Pencil Stache
  • ****
  • Posts: 593
Re: Lending Club - Tax Implications for Someone in Retirement?
« Reply #3 on: April 13, 2013, 04:13:47 PM »
If he needs a monthly income, then he should look into Managed Payout Funds, which MMM wrote about here: MMM on monthly payouts from Vanguard

the fixer

  • Handlebar Stache
  • *****
  • Posts: 1037
  • Location: Seattle, WA
Re: Lending Club - Tax Implications for Someone in Retirement?
« Reply #4 on: April 13, 2013, 06:46:50 PM »
He might also want to look into annuities if the goal is to have a stable income.