How to Rollover a 401k or IRA to Lending Club and Prosper

Rollover_IRA_To_LendingClub_Prosper

We often discuss the benefits of investing in p2p lending in a tax advantaged account, but we haven’t covered the actual process in detail. Readers often ask: How do I create a retirement account or rollover an IRA into Lending Club or Prosper? Both Lending Club and Prosper make this process simple and we’ll outline the steps to do this below. For investors looking to open a Lending Club IRA be sure to see if they are offering a current bonus for signup.

Besides rolling over an IRA from a previous employer or rolling over an existing traditional IRA or Roth IRA you can also open a new traditional or Roth IRA directly with Prosper or Lending Club.

Open Up a Lending Club IRA

To begin, head over to Lending Club’s website to create a new account which will prompt you for basic information. You will also be asked to choose from a variety of IRA types including: Traditional, Roth, SEP, SIMPLE and inherited. Accounts can be funded with an annual contribution, rollover or direct transfer.

Once registration is complete you will receive an email to sign your account application. Lending Club uses DocuSign for electronically signing documents which means the process is paperless for 401k rollovers and annual contributions.

Next, investors need to fund the account. Checks need to be sent to Lending Club’s preferred custodian Self Directed IRA Services, Inc. (SDIRA) and made payable to “SDIRA FBO {your name}”. This applies to both annual contributions as well as rollovers. For rollovers you will need to work with your current plan administrator to get the check sent for transfer.

For direct transfers you need to fill out information about the source account and print and sign the account application as well as the transfer request. Submit these documents to retire@lendingclub.com. This information is used by SDIRA to initiate the transfer. Once funds have been accepted by SDIRA they will be made available to invest.

SDIRA charges an annual account fee of $100 for administering a Lending Club IRA, but this fee is covered by Lending Club on your behalf if you have an initial minimum balance of $5,000. Lending Club will continue to pay this fee in subsequent years if your account maintains a balance of $10,000 or more.

Open Up a Prosper IRA

The first step in opening up a Prosper IRA is creating an account on the Prosper website. Once completed, investors need to create an account with a custodian. Prosper’s preferred custodian is Millennium Trust and the form investors need to complete is available here.

Next, users transfer assets into the new Millennium account. For new Roth IRA or traditional IRAs investors fund from their personal bank accounts. For rollovers and transfers, investors need to work with their current provider to have the funds sent to Millennium Trust.  Once Millennium Trust has the funds, they wire transfer them to Prosper for deposit into the new Prosper IRA account. The investing process remains the same for a retirement account.

Prosper has a $5,000 minimum deposit to open a Prosper IRA account. With the minimum deposit, Prosper will pay your annual IRA fee for the first year. They will continue to pay the annual IRA service fee on your behalf each year if you reach and maintain a $10,000 invested balance in the second year and beyond. If your initial transfer is over $10,000 your IRA fees will be paid each year.

Conclusion

There are significant benefits to investing in a tax advantaged account with p2p lending, especially since p2p lending is a much more tax inefficient investment compared to many other asset classes. Both Lending Club and Prosper make the process of investing in tax advantaged accounts very easy. Remember for the 2015 tax year, you have until April 18th to contribute to a Roth or traditional IRA.

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Chintan
Chintan
May. 17, 2017 7:00 am

Hello

How do we rollover Roth IRA money from Lending club back to a brokerage account Roth Ira account? I am not happy with the Lending club investment and want to move it back to other forms of investment.

Thank you

Concerned RIA
Concerned RIA
May. 31, 2017 9:00 am

I had an IRA account with Lending Club few years ago, the amount is under $10,000. Lending Club used to cover for the self-directed IRA account fee, in 2017, they decided not to cover fee for account amount lower than $10,000. It’s $100 annual fee, which is high in terms of percentage of the return you earned on Lending Club investment.
And in their email sent out to investor related to this change, they encouraged people to put in to IRA money into the account, which sounds very much like a financial trap to me for the following reason:
1. Lending Club notes are very illiquid with 3-5 years till maturity and the secondary market isn’t very active. So when you want to roll your investment out of Lending Club, it can take you years, and your account can be well under the $10,000 minimum, hence, you’ll be stuck with this annual fee charged by Self-directed IRA service for years till you have ZERO outstanding balance. Even for $1 of outstanding balance, there’s a $100 annual fee.
2. People who has small account are people who are in the middle class. If someone has account size of $9,000 with annual return on Lending Club of 6%, they advertise 5-7%, your annual earning is around $540, and $100 is going to pay for the account fee. 18.5% of your earnings goes to fee, very close to the hedge fund performance fee to me. And the return is not even that great.

I think the better business practice from Lending Club should be:
1. Grandfather people in, and pay for the account fee.
2. Have minimum investment size of $10,000. However, the reason why they don’t want to do this could be there are many of small accounts that also support Lending Club origination, hence, support their stock valuation and paying them for servicing fee. And they can argue that they get a lot of money from Institutional investors, the truth is, they need retail investors to diversify their investor base. It would be hard for them to negotiate price/servicing fee when they only have institutional investors. This is like buying merchandise, the retail people buying from Nordstrom, while the institutional investors bought from Nordstrom Rack.

This should be brought to SEC’s attention due to the following fact:
1. Self-directed IRA are mostly retail investors, the illiquidility nature of this investment isn’t clearly illustrated to investors. And Lending Club keep claiming the Folio secondary market is active, but I don’t think they can pass the liquidity test on asset published by SEC.
2. Encouraging people to put in more money in the illiquid asset to waive fee for now and fail to address there can be more fee later for liquidation.