Lending Club’s IRA: What You Need to Know

If you have an interest in investing in consumer debt, but aren’t terribly excited about paying ordinary income tax on the money that you make in your Lending Club account, you might want to consider the IRA option that Lending Club has so that you can invest in the world of peer-to-peer lending in a manner that’s also tax advantaged.

Before leaping in and deciding that you will use Lending Club for your individual retirement account, you first should consider whether or not Lending Club is an appropriate place to put your IRA. You can only invest $5,000 per year into all of your IRA accounts, so you want to allocate that money wisely. Since you will be using the account to plan for your retirement, you want to earn a good enough rate of return so that you can retire comfortably, but don’t want to take on any more risk than necessary so that you can be sure that you will be able to retire when you reach age 65.

Making loans to other people through peer to peer lending websites is a relatively new type of investment. Currently Lending Club investors have about a three year track record of making rates of return of about 9% on their money. This is very competitive with what mutual funds have averaged over a long period of time, but Lending Club doesn’t quite have the 70 track record  that the S&P 500 might have, but it does sport much lower volatility than the stock market does.

You probably don’t want to make loans through Lending Club as your primary retirement vehicle, but if you already have a fully-funded 401(k) plan, 403(b) plan or pension plan, investing through a Lending Club IRA might be a way to invest money outside of traditional stock and bond choices.

Lending Club allows investors to open all sorts of retirement arrangements, such as a Traditional IRA, Roth IRA, Simple IRA or a SEP IRA through a partnership in which EntrustCAMA serves as the administrator as the account.

Investors that fund more than $5,000 into their Lending Club IRA can qualify for a “no fee” IRA. Here’s the fine-print from Lending Club’s website: “To qualify for a no-fee IRA you must have an initial minimum balance of $5,000 or more in Lending Club Notes and maintain this invested balance for the first 12 months. To continue to qualify for the no-fee IRA after the first year, you must maintain an invested balance of $10,000 or more in Lending Club Notes. All account balances are determined as of the last business day immediately prior to the anniversary date of the opening of your account. An annual fee of $100 applies to accounts that don’t meet these requirements.”