Taking advantage of tax deferred earnings is extremely important in building wealth for retirement. The tax savings over the course of a career can become substantial. When it comes to p2p lending, there are a few aspects that make having your p2p lending allocation in an IRA especially appealing. Lend Academy readers who follow Peter’s returns are well aware that most of his accounts reside in an IRA.
The timing of this post comes as the April 15th deadline approaches for making an annual contribution for 2014 to either a traditional IRA or a Roth IRA. This deadline does not apply to 401(k) rollovers or IRA transfers. In this post, I’ll first review what makes investing in a peer to peer lending IRA so powerful and discuss the process of opening an account with Lending Club and Prosper.
Investors who are looking into investing in p2p lending often bring up the poor tax treatment as a downside to the asset class. This is a valid argument as interest payments are taxed as ordinary income and charge-offs are capital losses. The higher your tax rate is on earned income, the less attractive p2p lending returns are for the investor. In addition, deducted losses are maxed at $3,000 per year, unless you have capital gains to offset losses. For larger investors, this is another downside to a taxable p2p lending account. For more on p2p lending tax treatment, you can read our 2015 tax information post. [Read more…]