Lending Club, a company which offers a peer to peer lending marketplace, has recently begun offering an IRA option to customers that wish to invest some of their retirement funds into peer to peer loans.
California-based Lending Club is a peer to peer lending company which operates a marketplace that allows members of its website to lend money to one another. Many investors have took notice of Lending Club’s marketplace, as well as Prosper.com’s, as an opportunity to invest money directly into consumer debt. The company boasts that its investors are getting an average rate of return of 9.5%.
The company has partnered with EntrustCAMA to setup self-directed IRAs in which Lending Clbu users can have a Lending Club account that allows them to invest in consumer debt via Lending Club notes without having to pay ordinary income tax on their returns. Having a self-directed IRA account allows investors to diversify what they put their money into by putting money into non-traditional investments, such as Lending Club notes. With the Lending Club IRA, you can open up a Rollover IRA, a Traditional IRA, Roth IRA, SEP IRA or a Simple IRA.
Investors should note that investing into Lending Club notes are directly investing into consumer debt for one’s retirement, which some might say is too risky. Since the IRA was designed for retirement, some would argue that you should stick to more traditional investments for your retirement, but it’s hard to argue with the rates of return that Lending Club investors have been earnings during the last few years. During a period when the stock market has declined dramatically, Lending Club notes have been giving investors consistent rates of return.
No one would recommend that an investor places all of his or her retirement funds into notes through Lending Club, however, investors can open up multiple IRAs. Someone saving for retirement could setup a traditional IRA at Vanguard or Fidelity and one at Lending Club. Investors are limited to $5,000 per year in total contributions across all of your IRAs, but that doesn’t mean you can’t split that amount up between different types of accounts.
Some might think that setting up a Lending Club IRA is too much of a hassle, but by making one’s Lending Club’s earnings tax free, investors can dramatically improve returns. Lending Club notes are taxed as ordinary income (just as bonds and interest from CDs are), so if one’s marginal tax rate is 25%, they will be giving 25% of their Lending Club interest payments after defaults to the U.S. Treasury, which can be avoided via the Lending Club IRA.
