Author Topic: IRA strategy for P2P - Traditional or Roth and why?  (Read 2819 times)

jennrod12

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IRA strategy for P2P - Traditional or Roth and why?
« on: October 22, 2015, 09:36:44 PM »
I have both traditional and Roth IRAs from over the years.  Which is better to move into a P2P lending scenario?  This will potentially be 5-10% of my husband's and my retirement savings.

It seems like the advantage of a Roth is that I will pay fewer taxes on the withdrawals because the contributions were after-tax.  I also won't get stuck having to pull out the RMD at an inconvenient time (right now I don't intend to sell notes).  Although these funds are a relatively small % of our overall retirement savings, they could be a significant portion of my traditional IRA allocation since my husband's funds won't be in P2P, it will all be done in my accounts.

The advantage of the traditional is that I happen to have more uncommitted money there to roll over, but I could handle that by using the cash to re-buy whatever I need to liquidate from the Roth, which is mostly in equities right now.  Another advantage of using the traditional IRA is that I'm not likely to want to liquidate the P2P investment early in my retirement, as I'd rather liquidate equity investments and keep more money in interest-paying allocations, so I'd be selling other things before I'd pull money out of P2P.  Therefore the tax advantage of using the Roth might not be that much of an advantage since I wouldn't want to pull the money out.  Then again, it could be convenient for a relatively steady stream of income while keeping a base amount invested.

I'm leaning towards the Roth right now.

Thanks for your opinions, especially pointing out anything I haven't thought of.

Jenn

lascott

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Re: IRA strategy for P2P - Traditional or Roth and why?
« Reply #1 on: October 23, 2015, 12:55:15 AM »
The advantage of the traditional is that I happen to have more uncommitted money there to roll over, but I could handle that by using the cash to re-buy whatever I need to liquidate from the Roth, which is mostly in equities right now.
I don't understand the 'but' part. I'm currently using a ROTH for the tax and withdrawal simplicity.  Not perfectly clear how the tax on gains would work with their Custodian, SD IRA Services.
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jennrod12

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Re: IRA strategy for P2P - Traditional or Roth and why?
« Reply #2 on: October 23, 2015, 09:38:54 PM »
Thanks for your reply, LA Scott,

What I meant was that I have idle cash in my traditional IRA so it would be easy to get started.  I'd have to liquidate something in my Roth.  The "but" means that I could use my idle cash to purchase in my traditional IRA whatever I liquidate in my Roth, so it's not that big a deal.

Jenn

lascott

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Re: IRA strategy for P2P - Traditional or Roth and why?
« Reply #3 on: October 23, 2015, 10:33:42 PM »
I'd have to liquidate something in my Roth.
I understand as I sold some of my mutual funds to a "cash" account within the ROTH IRA and then had LC transfer the money from there.

The "but" means that I could use my idle cash to purchase in my traditional IRA whatever I liquidate in my Roth, so it's not that big a deal.
I assume that means you are >59.5 or you are only planning on withdrawing the ROTH contributions and not the investment earnings within the ROTH which you'd have to pay the 10% penalty on.
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AnilG

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Re: IRA strategy for P2P - Traditional or Roth and why?
« Reply #4 on: October 23, 2015, 11:53:49 PM »
I don't have anything specific to your question to add. Based on my past conversation with a few P2P lenders who invested through IRA and felt blindsided by the high fees specifically for distribution, withdrawal, asset transfer, and account termination. I wanted to highlight a few things about self-directed IRA.

The IRA that holds your LC or Prosper are self-directed IRA for alternative investments and don't have the relaxed policies and lower costs of typical IRAs that hold public investments at broker-dealers and financial institutions such as Vanguard or Fidelity. Please make sure you read and understand the policies listed on the Lending Club page for IRA specially the footnotes.

Invest in Consumer Loans via a Self-Directed IRA
https://www.lendingclub.com/public/individual-retirement-accounts.action

SDIRA IRA Fee Schedule link in footnotes
https://www.sdiraservices.com/files/IRA%20Fee%20Schedule%20-%20eff%201.1.2014%20-%20updated%206.24.14.pdf
---
Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com

lascott

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Re: IRA strategy for P2P - Traditional or Roth and why?
« Reply #5 on: October 24, 2015, 01:40:21 AM »
Nice post and links, AnilG.

I was happy back when I opened my ROTH IRA that LC would cover the annual fee.

Image: http://i.imgur.com/RwsHXfc.png

via: https://www.lendingclub.com/public/individual-retirement-accounts.action

SDIRA IRA Fee Schedule link in footnotes
https://www.sdiraservices.com/files/IRA%20Fee%20Schedule%20-%20eff%201.1.2014%20-%20updated%206.24.14.pdf
Doesn't seem like withdrawals will matter if you do them monthly via ACH.
Image: http://i.imgur.com/AWMVdXh.png
« Last Edit: October 24, 2015, 02:49:39 PM by lascott »
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jennrod12

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Re: IRA strategy for P2P - Traditional or Roth and why?
« Reply #6 on: October 24, 2015, 01:59:27 PM »
I assume that means you are >59.5 or you are only planning on withdrawing the ROTH contributions and not the investment earnings within the ROTH which you'd have to pay the 10% penalty on.

I was intending to do a trustee to trustee transfer to SDIRA.  The money would then still be in a Roth IRA, so I don't expect any penalty.

Jenn

jennrod12

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Re: IRA strategy for P2P - Traditional or Roth and why?
« Reply #7 on: October 24, 2015, 02:13:27 PM »
Thanks for that fee chart, LA Scott,

What do you suppose the Roth Conversion (per asset) charge of $25 means?  If someone over-contributed to their Roth IRA due to income restrictions, would it cost $25 per note to xfer the note to a traditional IRA?  Or, more likely, $25 total for the conversion?

I also noticed it says there is a $500 Minimum Cash Requirement, are we required to leave $500 with SDIRA, and not transfer it into LC? 

I'm just wondering if anyone has looked into these and already knows the answers, thanks.  Also, any other first-hand experience with the costs of putting an IRA into LC would be appreciated.

Jenn

lascott

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Re: IRA strategy for P2P - Traditional or Roth and why?
« Reply #8 on: October 24, 2015, 02:59:45 PM »
Thanks for that fee chart, LA Scott,
What do you suppose the Roth Conversion (per asset) charge of $25 means?  If someone over-contributed to their Roth IRA due to income restrictions, would it cost $25 per note to xfer the note to a traditional IRA?  Or, more likely, $25 total for the conversion?
You are welcome but my chart image came from AnilG's PDF link so he gets the credit :)

I did a transfer from Fidelity and I don't recall (and didn't see when I just looked) at $25 fee. Perhaps it is waived or LC covers it. SDIRA seems to be generic and they have some deal/relationship with LC ... at least in terms of electronic interface/APIs since LC knows your balance and to handle covering the $100 fee.

I also noticed it says there is a $500 Minimum Cash Requirement, are we required to leave $500 with SDIRA, and not transfer it into LC? 
I think your LC account is "within" the SDIRA so there is no transfer per se.
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