You Can Now Open a Prosper IRA

[Update 2/29/12: Prosper announced the minimum is now $5,000 and they will waive all IRA fees if investors have $5,000 invested within two months of opening the account – they have a new page on their site about it. This is the same deal as the Lending Club IRA]

This week Prosper is set to announce the launch of an IRA option for investors. They did a soft launch of their IRA product back in November to a handful of customers but it is now available to everyone. There will likely be an announcement from Prosper on their new IRA some time this week. But you can go to www.prosper.com/ira right now to open your account.

The IRA will be managed by Sterling Trust, one of the leaders in self-directed IRA’s. Because this is an IRA product and Sterling Trust will be the custodian of your funds it is not as simple as just opening up a regular account at Prosper. You will have to open an account at Sterling Trust and then transfer your money there before being able to invest in Prosper notes.

You Will Need $10,000 to Open A Prosper IRA

You will be able to open a new IRA or rollover an existing IRA or 401(k) into Sterling Trust for investing in Prosper notes. But there is a catch. There is a $10,000 minimum to open an account. But the good news is that Prosper will waive all IRA management fees if you invest all your $10,000 within two months of opening your account.

This is a big deal for investors. Until now, you have had to jump through expensive hoops in order to invest in Prosper notes through an IRA. But now, it will be a relatively simple process. Peer to peer lending is an investment that is perfectly suited to an IRA. With all interest taxed at the standard tax rate, investing through an IRA will make a huge difference in the real return for many investors. I have been hoping and pushing for a Prosper IRA option for over a year now, so I say it is about time – Lending Club has had an IRA option since 2009.

What do you think? Will you be taking advantage of the new Prosper IRA? As always I am interested to hear your comments.


Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech.

LendIt Fintech conducts three conferences a year for the leading fintech markets of the USA, Europe, and Latin America. LendIt also provides cutting-edge content all year long via audio, video, and written channels.

Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series.

Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.

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Dan B
Dan B
Jan. 30, 2012 5:35 am

Not that I would be remotely interested, but I wonder why they didn’t make the minimum $5k. Seems like a more logical amount all things considered. Also, I assume this is a no-fee IRA?

Roy S
Roy S
Jan. 30, 2012 6:54 am

Wow! So in order to open a Prosper IRA, my wife and I both have to contribute the max amount allowed per year. Those single people are lucky that they can still contribute for 2011 and 2012 into their Prosper IRA for another few months…assuming, of course, they haven’t already contributed anything to any IRA for 2011. But after that, they’ll have to wait until next year. Whoever decided upon $10,000 is a real genius! Of course, I guess you could always roll over your existing IRA, which is probably what they are really wanting people to do.

, your post left off whether this is a traditional only or whether you can open a Roth IRA…

DT
DT
Jan. 30, 2012 7:00 am

Awesome news! I will definitely act on this welcome change.

Roy S
Roy S
Jan. 30, 2012 7:02 am

Come to think of it, having to give my information to yet another company and hope they don’t lose it on a laptop or get it stolen because their security sucks just to do business with a company that already has all of my information…well, it’s not worth it to me…

Roy S
Roy S
Jan. 30, 2012 7:07 am

…I don’t mean to imply that Sterling’s IT security sucks, just that there have been a lot of other companies who were supposed to have good security and then proceeded to have all of their data…er, our data stolen! I just don’t like the odds of having my information stolen with every additional company I do business with…

TekGems
Jan. 30, 2012 10:26 am

If Prosper wants to make IRA an option (like LendingClub), I don’t think its a bad idea to make the process more seamless for the person applying. $10k is too high for me. I opened up a SEP-IRA and Roth IRA at Charles Schwab for a much lower minimum with free trades of Schwab-owned funds.

Mike
Mike
Jan. 30, 2012 11:15 am

Sterling Trust has to be better than CAMA, Lending Club’s custodian. I have not been impressed by their customer service, and a quick google search shows I am not alone in that opinion. I actually hope that LC will transfer custodianship to another group before I need to access those funds.

Wes
Wes
Jan. 30, 2012 12:04 pm

Prosper is late to the game, again. Lending Club waives IRA fees if you invest $10K by the end of a year. Much easier to do. And they processed my application (and US mail deposit to the trustee) quickly enough that my account was active one week after dropping the check in the mail.

Glenn G. Millar
Jan. 30, 2012 2:59 pm

In answer to comments/questions –

Both traditional IRA’s and Roth IRA’s are eligible.
Rollover IRA’s may be part of this $10,000 and yes we are encouraging that.
When we set the $10,000 minimum we were aware that, unfortunately, it will not appeal to everyone.

Let me know if you have any additional questions.

Glenn G. Millar
Prosper Employee
Notes Offered by Prospectus http://www.prosper.com/prospectus

Mike
Mike
Jan. 30, 2012 5:20 pm

I will see if I can change my custodian to SDIRA without opening another IRA account. Thanks for the info, Peter.

Ryan
Ryan
Jan. 31, 2012 3:18 pm

Great news! Thanks for the update.

White Coat Investor
Feb. 7, 2012 12:01 pm

The $10K limit is stupid. Seriously people, how hard is it to see that IRA contributions are $5K ($6K if over 50) a year. Basically it’s rollover IRAs only, or else you’ve got to find someone who somehow has enough cash to do two IRAs at once early in the year, but for some reason didn’t have enough to do an IRA a year before. Yea, that’s a lot of people.

And Sterling Trust? Ugh. Look at those fees! https://www.sterling-trust.com/forms/Fee-Schedule-trad-roth-sep-simple.pdf

$225 annual fee. $50 late fee on that annual fee. $30 a year for paper statements (what, do they print them on sheets of gold?)

But wait, there’s more. Let’s decide you no longer like your prosper IRA. Now you get to leave. What’s the damage? Well, it starts at $200. Then it’s $100 per asset. I hope that isn’t per prosper loan. It would really suck to pay $100 on a $25 asset. And don’t forget the $25 “special handling fee” in case you need “special handling” (which you almost surely will.)

Don’t do a $2000 IRA with these guys. If you paid $225 annual fee plus just $200 to leave after a year, you’re looking at starting out with a negative 21% return.

It’s a little unclear if the fees Prosper waives if you do invest $10K include the Sterling Trust $225 annual fee and the $200 “hit me in the butt on the way out fee.” Perhaps you could clarify Peter.

White Coat Investor
Feb. 7, 2012 12:08 pm

The Lending Club IRA fees aren’t much better, but at least they’re better. $60 annually, $20 paper statements, and $150 when you leave.

https://www.sdiraservices.com/files/forms/IRA_Fee_Schedule_-_eff_01.01.2012_-_SECURED.pdf

White Coat Investor
Feb. 7, 2012 12:09 pm

You’re got to have pretty sizable accounts in the IRAs before you’re better off paying these fees instead of the taxes on your earnings.

Glenn G. Millar
Feb. 7, 2012 1:11 pm

Your concerns are noted. Unfortunately, this is out of my area of expertise, so I have turned your questions/comments over to the investor side. We should have an answer up by the end of the day or first thing in the morning which may help.

Thanks,

Glenn G. Millar
Prosper Employee

CA-Lender
CA-Lender
Feb. 7, 2012 2:12 pm

I think the whole reason for the $10,000 minimum is so that it is limited to fewer investors, to make sure they can work out any bugs.

I’ll bet that within the next 12 months, that minimum will drop to $5000.

Mike
Mike
Feb. 7, 2012 7:04 pm

@ White Coat Investor: I believe LC IRA fees are waived if you are over 15k with their initial custodian, CAMA. I haven’t paid a penny in fees in the two years I’ve had my SIMPLE with them. By the way, I enjoy reading your blogs.

CA-Lender
CA-Lender
Feb. 7, 2012 7:52 pm

Since is the the IRA thread, I had a “tax related” (none IRA) comment, and I hope it’s ok to add it here.

The way Prosper reports interest and defaults, makes investing with them in a taxable vehicle a bit disadvantageous (for some). I’ll explain, and use the amounts from my 1099-OID as factual examples. I have $100k invested at Prosper, and my 1099-OID showed $16k interest (OID) and $4k in defaults (1099-B), which show up as capital losses. Here’s the problem. Capital losses are only deducted against capital gains, but you cannot report more then $3k per year of losses. Personally, I have enough capital loses from 2008 to deduct $3k per year for the rest of my life. I cannot deduct the $4k in defaults.

So, bottom line, I will pay taxes on $16k of earnings, while, in reality I only earned $12k (interest less defaults), and at my 31% (combined Fed and CA) tax rate I will pay $5k ($16k *31%) in taxes, making my effective tax rate 42% ($5k / $12k of net earnings). (Way more then Mitt Romney)

I can imagine this could be a real issue for very large portfolios (ie reflective-rupee), if they don’t have large capital gains in addition to their interest income.

Also, not sure if this is the case, but, I seem to recall in 2009 or 2010 (when I had a small amount with LC), they issued 1099s only if EACH note earned over $10 of interest, so if one invested in $25 notes, they would never see a 1099. I had $5000 invested with them, all in $25 notes, and never got a 1099 Obviously, this is not correct reporting of interest, but just wondering if LC still does it that way. If so, sshh, don’t tell their tax department, I’ll be moving my money back to LC.

Note: I don’t think it’s a “Prosper” reporting issue, but an IRA / legislative issue.

Mike
Mike
Feb. 7, 2012 8:47 pm

Yikes! Sounds like you need to make an appointment with Mitt’s accountant!

Glenn G. Millar
Feb. 9, 2012 5:52 pm

Hi Folks,

It took me a little more time than I thought, but I have some answers for you.

1) Maintenance Fees – The fees quoted above are from the Sterling website, not from the Prosper page. For Prosper investors, there are no fees the first year of the IRA. That means no $225 fee, nor any late fees on the annual fee. We are currently evaluating what the costs will be in year 2 and subsequent years. If we do not discount them, then they would be $225 a year. The reason for the annual fees is that unlike other IRA’s with other investment brokerage, where the brokerage is making money on the investment itself, the annual fee is the only way for Sterling to make money for their work.

2) Paper Statement Fee – Yes, there is a paper statement fee. But really, this is for the environment. To send a paper statement, there is not only the statement, but the envelope. Most people prefer electronic versions and toss their paper statements which just kills trees. All statements are sent electronically and can easily be printed on a home printer. Thus, the fee can be easily avoided and hopefully saves a few trees.

3) Fee For Moving Your Funds to a Different Management Company – This is pretty standard no matter where your IRA is and the fee is certainly within the typical range.

4) $10,000 Minimum – Based on your feedback, we are currently evaluating whether a smaller number would have been a better choice. CA-Lender may be right about this. Which begs the question, did he bet on the Giants or the Patriots? Stay tuned.

Let me know if you have any additional questions.

Glenn G. Millar
Prosper Employee
Notes Offered by Prospectus http://www.prosper.com/prospectus

CA-Lender
CA-Lender
Feb. 9, 2012 5:59 pm

Glenn:

I was going to bet on the Pats, but not being a big sports bettor, never got the bet down…so, I made money with my inaction.

(Note: The NY Giants had already cost me a ton on their beating of my 49ers, so the “non-bet” turned out a good investment)

🙂

Glenn G. Millar
Feb. 9, 2012 6:43 pm

Oops – One minor mistake. I had stated $225 per year in fees. These are the actual Sterling Trust Fees for the second year if we don’t make any reductions.

$1 – $249,999 in account – $200
$250,000 to $499,999 – $250

Glenn G. Millar
Prosper Employee

White Coat Investor
Feb. 13, 2012 8:13 am

$200 might be a standard exit fee where you invest, but not where I invest. Let’s take a look:

Firm Exit Fee
Vanguard $0
Bridgeway $0
Zecco $0
Scotttrade $0
Fidelity $50
Schwab $50
Wells Fargo $50
Many 401Ks including the TSP $0

I’m currently trying to decide whether to open an IRA at lending club or at prosper. Indefinitely waiving/covering the $225 per year fee and lowering the exit fee to something a more informed investor would consider standard (say….$0-50) would go a long way.

Glenn G. Millar
Feb. 13, 2012 1:51 pm

@ White Coat – Those are definitely marked differences. However, the difference is that these are not custodians of self-directed IRA’s specializing in alternative assets. Because our notes are not publicly traded securities they are classified as alternative assets and we do not know of any Self Directed Custodian with a lower termination fee.

On another note, if we give a great return and great service, hopefully an investor will never need to trigger the termination fee. 🙂

Hope that helps.

Glenn G. Millar
Prosper.com Employee
Notes Offered by Prospectus http://www.prosper.com/prospectus

White Coat Investor
Feb. 14, 2012 8:53 am

Hopefully. But you should be so confident in your level of service (that no one will ever want to leave) that you should lower it to $0. 🙂

I think Prosper ought to pay the annual self-directed IRA fees out of the fees it generates from the loans. Take it out of the borrowers, not the investors.

Just my opinion.

Kyle
Kyle
Feb. 16, 2012 4:52 pm

On the fees debate, it feels like there is a camp of investors who see Prosper as indebted to them and thus should take care of fees. Allowing IRAs is a great way to create investment dollars for its loans, but this is more of a favor to the lenders than it is to Prosper. IRAs are annoying for any financial to deal with, the fees are what they are, because thats the cost of doing business and all the work of setting up and maintaining your account.

Neal Smith
Neal Smith
Feb. 27, 2012 4:59 pm

Peter wrote

“The reason for the annual fees is that unlike other IRA’s with other investment brokerage, where the brokerage is making money on the investment itself, the annual fee is the only way for Sterling to make money for their work.”

Well, Prosper is making money on the investment and can make some suitable arrangement with Sterling to cover those fees. Rmember, with IRA accounts you will have large sums incoming via rollovers that don’t get invested all that quickly. Free cash in Prosper’s coffers.

Since most of my $ is tied up in IRAs, I was very excited about the new Prosper IRA offering. Can’ tell you how let down I feel right now. (No LC in my state).

By the way there is nothing in the enrollment paperwork about first year fee forgiveness.

neal smith
neal smith
Feb. 29, 2012 7:25 am

, no fee IRA would be great news! Minimums and timing are not issues for me.

More thoughts about Sterling’s $200 annual fee…on a $10,000 account, Prosper earns $100 per year in lender fees for all it does – establish the marketplace, service loans, legal, regulatory and more. On the same $10,000 account, Sterling wants $200 annually… for what? Doesn’t make sense.

Neal Smith
Neal Smith
Mar. 1, 2012 12:56 am

Hurray to waived fees, not just for the first year but ongoing annual fees too, per the new footnotes on the Prosper IRA page!

Mike
Mike
Mar. 1, 2012 5:43 am

That makes Prosper more attractive than Lending Club in this respect. I believe your IRA balance has to be above 15k to qualify for fee waivers at LC.

Mike
Mike
Mar. 1, 2012 5:30 pm

Thank you for the clarification, Peter. Looks like LC has relaxed their requirements since I opened up my SIMPLE IRA two years ago.

Glenn G. Millar
Mar. 15, 2012 4:02 pm

By the way, for those of you who haven’t heard, my last day at Prosper is tomorrow, March 16.

On Monday, I start as the VP of Marketing for Credit.com. Though I will no longer be in P2P, I’ll still be in the financial industry, so perhaps some of us will cross paths again.

And now as a non-employee, I can legally say that Prosper is a great investment, as I am a personal investor. 🙂

Best of luck to you all,

Glenn G. Millar
Prosper Employee (for another 1 1/2 days.)

neal smith
neal smith
Apr. 1, 2012 6:08 am

Folks considering a prosper ira should be aware that folio trading is not currently alowed. They hope to allow folio trading in the future, acording to an email i received from them.

Neal S.
Neal S.
Jun. 13, 2012 8:14 pm

Prosper IRA accounts can now trade notes on folio. I haven’t seen any official announcement, but it works on my account.

Neal S.
Neal S.
Jun. 14, 2012 6:37 pm

Well, it worked for one day. As of today, I can no longer get to folio for myt IRA account.