Author Topic: Lending club with roth IRA anyone?  (Read 12264 times)

Mr Crore

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Lending club with roth IRA anyone?
« on: February 22, 2013, 07:58:53 AM »
Hello Folks,

Inspired by MMM's lending club experiment, I am planning to open a roth IRA for my lending club investments.

Anyone did something similar? Suggestions and any problems faced? I see some fees (annual fee of $100) associated with opening a IRA through lending club (actually SDIRA Services) if a minimum balance of $10000 is not maintained. I will be funding the a/c with $10000 just want to ensure there are no other fees involved.

All of the invested money in the IRA will go to lending club notes.

Please let me know if anyone has done something similar and has any pointers/suggestions.

Thanks and best regards.

sherr

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Re: Lending club with roth IRA anyone?
« Reply #1 on: February 22, 2013, 10:45:18 AM »
I looked at doing something very similar briefly and then discovered that as a North Carolina resident I'm not legally allowed to participate in the primary Lending Club market. :-/

So I don't know if there are other fees or surprises to look out for, but you should keep in mind that the annual limit on how much money you can contribute to IRAs still applies (currently $5,500). So to fund LC with $10,000 initially you need to transfer half of that money from an existing IRA account.

chucklesmcgee

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Re: Lending club with roth IRA anyone?
« Reply #2 on: February 22, 2013, 03:41:48 PM »
Hello Folks,

Inspired by MMM's lending club experiment, I am planning to open a roth IRA for my lending club investments.

Anyone did something similar? Suggestions and any problems faced? I see some fees (annual fee of $100) associated with opening a IRA through lending club (actually SDIRA Services) if a minimum balance of $10000 is not maintained. I will be funding the a/c with $10000 just want to ensure there are no other fees involved.

All of the invested money in the IRA will go to lending club notes.

Please let me know if anyone has done something similar and has any pointers/suggestions.

Thanks and best regards.

I have a self-directed Roth IRA invested in Prosper.com notes. Personally I absolutely love it, especially considering the returns. I would be a little hesitant to recommend this strategy to others just considering the amount of risk involved. P2P loans have only been around a short while and it's difficult to say that they'll continue returning what they've been. If you can tolerate this risk and the possibility that you could lose a lot of money, go for it. Tax benefits will be enormous.

Mr Crore

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Re: Lending club with roth IRA anyone?
« Reply #3 on: February 23, 2013, 10:28:54 AM »
Thanks for the responses. I won't be putting more than $10000 in the first year and then based on the returns/experience adjust my investments going forward. Tax advantage is what lead me to pursue the roth IRA approach as opposed to a taxable a/c.

How much time do you put on average managing investments on peer lending sites?

chucklesmcgee

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Re: Lending club with roth IRA anyone?
« Reply #4 on: February 24, 2013, 03:15:50 PM »
How much time do you put on average managing investments on peer lending sites?

Very little nowadays. I just have an quick invest filter setup on Prosper, which automatically invests and reinvests funds as new loans become available. I have been working with an analyst to refine my lending criteria, but in terms of day-to-day management, near 0 time-wise.

BYUvol

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Re: Lending club with roth IRA anyone?
« Reply #5 on: February 28, 2013, 11:40:37 AM »
I wouldn't establish a Roth IRA with Lending Club, for three reasons.
1) It is a very risky endeavor (like investing in any new start-up)
2) the Roth space is very precious
3) you can't benefit from tax-loss harvesting in non-taxable accounts

I'm not against Lending Club if you can appreciate the risks, I personally have an account, and the rates are tantalizing, but it isn't a very mature business and there are all sorts of risks. Bankruptcy risk for Lending Club and Political risk (they can't afford the money on Lobbyists that banks can) mean this business may not be around in 10 years. My hunch is that if Lending Club were to file for bankruptcy at some point, alot of people would skip out of paying back the money, and you'd lose that tax advantaged space forever.

For this reason, I only invest in index funds in my roth space. Leave more risky assets, like stock in individual companies or volatile sectors to taxable accounts, so if they crash, at least you can tax loss harvest. http://www.bogleheads.org/wiki/Tax_Loss_Harvesting

Mr Crore

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Re: Lending club with roth IRA anyone?
« Reply #6 on: March 03, 2013, 10:57:11 AM »
I wouldn't establish a Roth IRA with Lending Club, for three reasons.
1) It is a very risky endeavor (like investing in any new start-up)
2) the Roth space is very precious
3) you can't benefit from tax-loss harvesting in non-taxable accounts

I'm not against Lending Club if you can appreciate the risks, I personally have an account, and the rates are tantalizing, but it isn't a very mature business and there are all sorts of risks. Bankruptcy risk for Lending Club and Political risk (they can't afford the money on Lobbyists that banks can) mean this business may not be around in 10 years. My hunch is that if Lending Club were to file for bankruptcy at some point, alot of people would skip out of paying back the money, and you'd lose that tax advantaged space forever.

For this reason, I only invest in index funds in my roth space. Leave more risky assets, like stock in individual companies or volatile sectors to taxable accounts, so if they crash, at least you can tax loss harvest. http://www.bogleheads.org/wiki/Tax_Loss_Harvesting

Thanks for the interesting perspective.

My plan is to have a roth IRA for my (non-working) spouse and to invest only $10000 in the notes. I already have a roth IRA which consists of vanguard index funds.

mpbaker22

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Re: Lending club with roth IRA anyone?
« Reply #7 on: April 15, 2013, 09:19:45 AM »
BYUvol, would you mind explaining why tax loss harvesting does not apply/applies to lendingclub IRA but not stock IRA.

I don't quite understand point number 3.

Thanks!

grantmeaname

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Re: Lending club with roth IRA anyone?
« Reply #8 on: April 20, 2013, 08:31:38 AM »
Tax loss harvesting is using capital losses to offset capital gains, yes? In traditional and Roth IRAs, there are no capital gains or losses. If you lose money on something in an IRA, that's the end of that, and you can't use that deduction anywhere.

Joet

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Re: Lending club with roth IRA anyone?
« Reply #9 on: May 17, 2013, 03:31:43 PM »
Tax loss harvesting is using capital losses to offset capital gains, yes? In traditional and Roth IRAs, there are no capital gains or losses. If you lose money on something in an IRA, that's the end of that, and you can't use that deduction anywhere.

one minor tweak to this is if it happens in a given year where you've made a contribution, you can "reverse" the contribution to the Roth for that year, realize your loss, and re-contribute for the same tax year, effectively locking in those losses for tax loss harvesting.

Process is described here: The wrinkle is basically that there are losses in current year contributions. EG you put $5.5K in on January 1, by June 1 it is worth $2.5k. An investor could withdraw this contribution [a recharacterization], bank the $3k tax loss, and contribute a 'new' $5.5k to their Roth for that tax year

http://www.fairmark.com/rothira/rctop.htm