Author Topic: Folio and IRAs  (Read 110800 times)

core

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Re: Folio and IRAs
« Reply #30 on: October 19, 2013, 02:56:32 PM »
Don't forget you would have 60 days to deposit it into another IRA ("rollover"). But I guess if you were in a coma during that time...

During what time, is the question.  If the clock starts the moment you make the offending trade then it's already too late for almost everyone here.  Waiting for a year-end statement or letter from LC counsel (or IRS) will also almost definitely be beyond any 60 day window you might have had.


yojoakak

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Re: Folio and IRAs
« Reply #31 on: October 19, 2013, 03:14:23 PM »
Don't forget you would have 60 days to deposit it into another IRA ("rollover"). But I guess if you were in a coma during that time...

During what time, is the question.  If the clock starts the moment you make the offending trade then it's already too late for almost everyone here.  Waiting for a year-end statement or letter from LC counsel (or IRS) will also almost definitely be beyond any 60 day window you might have had.

I'm not an accountant, but: If you don't have the money, then how is it a withdrawal/distribution?

core

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Re: Folio and IRAs
« Reply #32 on: October 19, 2013, 03:23:25 PM »
I'm not an accountant, but: If you don't have the money, then how is it a withdrawal/distribution?

It's a distribution the moment you take the money from an IRA and move it into an account which does not qualify.  In this case it would be the account status itself that changes -- the cash does not have to move.  The fact that you personally never received any cash is never relevant; There are all kinds of similar things one can get oneself into with say self-directed real estate IRAs where you're instantly in trouble even though you never moved any cash.  For example take that income-producing property of yours and just start using it as a family lake house.  Maybe that was a bad example... I'm sure someone can think of a better one.  Similar pitfalls are all over the place which don't involve an actual withdrawal.

Joleran

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Re: Folio and IRAs
« Reply #33 on: October 19, 2013, 04:36:12 PM »
What's to keep someone with a regular account and an IRA from listing notes from the regular high account at a ridiculous markup, and then buying then notes from the IRA account...and I assume getting a penalty free distribution from the IRA? Maybe this has something to do with it?

The main issue would be that the loans you sold at a ridiculous markup would come with taxes on the "profit".

pplinvestor

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Re: Folio and IRAs
« Reply #34 on: October 19, 2013, 10:30:22 PM »
Banning IRAs from folio
But LC did not ban by rejecting Folio application from IRA account, nor disallowing trading on Folio from IRA.  LC can easily do.  They just "ban" in rules published online?  That's not much "ban" to me.

Rob L

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Re: Folio and IRAs
« Reply #35 on: October 20, 2013, 04:45:28 AM »
It's a distribution the moment you take the money from an IRA and move it into an account which does not qualify.
Okay, here's how complicated things can be. I have most of my IRA funds at Fidelity Investments. When I started with LC I filled out the SDIRA paperwork, they opened a Rollover Traditional IRA account and directed Fidelity to transfer funds to it per my instructions to SDIRA. Once that amount was fully invested I wanted to add a little more. My Fidelity Account has the ability to transfer funds by wire to another institution. Prior to the transfer I had to get Fidelity to set up my SDIRA routing and account numbers, verify identity, etc. Finally everything is ready to go, I log onto Fidelity, select the from account (my IRA) and the to account (SDIRA). Before I hit enter Fidelity warned me that this was a distribution! Obviously I did not hit enter. I called Fidelity and they told what I had to do. Even though it was IRA to IRA I wasn't going about it properly. What I must do, and have successfully done, is fill out a SDIRA IRA rollover  transfer request form and email it to them along with a letter of instruction. They make the request to Fidelity to move the funds, not me. I was very careful all along the way because I don't want any distributions, just rollovers, and I almost messed up big time. Fidelity would not have stopped me from making the transfer and I would have been in for a surprise come tax time. At best it would have been something to explain and not a big deal but I don't want to go there. The IRS is very picky about this stuff and I didn't know isn't an acceptable answer.

I have put in an email to my account rep on this topic. If I get some answers I'll try to share what I learn.

To core: stream of consciousness typing in the middle of the night will do that.
« Last Edit: October 20, 2013, 04:58:19 AM by Rob L »

core

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Re: Folio and IRAs
« Reply #36 on: October 20, 2013, 04:54:13 AM »
Whoa, Rob.  The IRS scared you right out of using paragraphs and as a consequence, I'm scared out of my mind.   Thanks for the heads-up!

yojoakak

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Re: Folio and IRAs
« Reply #37 on: October 20, 2013, 12:07:58 PM »
It's a distribution the moment you take the money from an IRA and move it into an account which does not qualify. 
Again I am not an accountant, but isn't it either a distribution OR the first half of a rollover? How can you tell the difference?

Quote
In this case it would be the account status itself that changes -- the cash does not have to move.

Can LC just unilaterally do that? I thought while an individual might be the beneficiary of an IRA, that individual doesn't really own it.

Rob L

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Re: Folio and IRAs
« Reply #38 on: October 22, 2013, 02:21:14 AM »
I have not heard back from my account rep. That is quite unusual. Typical response is less than a day.

To clarify what may be the problem I copied a note sale from my June FolioFn statement. There was nothing wrong with the note; just a duplicate I bought by mistake and wanted to sell.

As you see, the first thing that happens is that the note is transferred from my LC account into my FolioFn account. The final step is the transfer of funds into my LC account from my FolioFn account. My fear is that the movement of funds and notes between these two accounts may not be considered "rollovers", thus reportable to the IRS for tax purposes and the reason I've been saying this could be a huge deal! I do very much hope this isn't the case at all.

Date : 6/24/13   
Transaction ID :   
Type : Sell

Note Transfer                    Transfer Note from Lending Club account to FOLIOfn account    
Trade                                  Sell Note: 24959816                                                        $50.49
Cash Transfer                   Transfer Funds to Lending Club account                   -$49.99
Fees                                    Trading Fees                                                                    -$0.50

Rob L

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Re: Folio and IRAs
« Reply #39 on: October 22, 2013, 02:48:22 AM »
Can LC just unilaterally do that? I thought while an individual might be the beneficiary of an IRA, that individual doesn't really own it.

Individuals certainly do own their IRA account in their own names. These are special accounts with special rules governed by the tax code and they have a custodian that provides the IRS reporting, etc. The custodian is the bank, brokerage, etc. that provides the account.

For the purpose of selecting who gets the assets when the owner dies he/she may name a beneficiary, multiple beneficiaries (divide it up), secondary beneficiaries (in case primary beneficiaries predecease primary ones, etc.

You may be thinking of trusts, which are separate legal entities, not owned per se, but are administered by trustees. Trusts, patricularly living or inter vivos  trusts are very useful estate planning devices. Don't leave earth without one.

yojoakak

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Re: Folio and IRAs
« Reply #40 on: October 22, 2013, 10:11:21 AM »
You may be thinking of trusts, which are separate legal entities, not owned per se, but are administered by trustees. Trusts, patricularly living or inter vivos  trusts are very useful estate planning devices. Don't leave earth without one.

I thought an IRA was a trust...

"26 USC § 408 - Individual retirement accounts

For purposes of this section, the term “individual retirement account” means a trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries, but only if the written governing instrument creating the trust meets the following requirements..."

http://www.law.cornell.edu/uscode/text/26/408

Rob L

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Re: Folio and IRAs
« Reply #41 on: October 22, 2013, 10:55:09 AM »
I thought an IRA was a trust...
"26 USC § 408 - Individual retirement accounts
http://www.law.cornell.edu/uscode/text/26/408

You are absolutely right; I stand corrected. Learn something new every day.
See IRS Publication 590 for a little light reading.

Leaves me even more clueless as to what's going to become of this LC / FolioFn IRA situation.

core

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Re: Folio and IRAs
« Reply #42 on: October 22, 2013, 07:36:53 PM »
I have not heard back from my account rep. That is quite unusual. Typical response is less than a day.

Two full business days and still no response Rob?  Strange.  Did you not send your account rep enough roses this year?  They may be in panic mode over there.  Staying quiet hoping that things will blow over.  They're probably right about that.  The best course of action may be to continue trading as usual and when things blow up we can just blame it on the custodian.  $$$

I thought an IRA was a trust...
"26 USC § 408 - Individual retirement accounts

Very interesting.  Yes, one does learn something new every day.  And I thought the 'A' in IRA always stood for "arrangement".  When did that change?

Rob L

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Re: Folio and IRAs
« Reply #43 on: October 22, 2013, 08:57:05 PM »
Three business days now.
If the answers to my questions were quick and easy I probably would have heard something by now. Possibly a "sticky wicket" as the Brits might say.
I wouldn't be surprised if this doesn't take a bit of time.

Rob L

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Re: Folio and IRAs
« Reply #44 on: October 24, 2013, 03:33:15 PM »
The answer from my LC Account Rep to my email is in. All posted without commentary. First my email:

Hi, There is some new language on your web site that I very much doubt was there when I joined this past May. It's a really big deal and I simply do not believe I overlooked it when I opened my account (though admittedly anything is possible). From the LC web site 10/19/2013:
Quote
About the Trading Platform

Please note that at this time, Lending Club Notes purchased through a tax-advantaged individual retirement account (IRA) cannot be traded on the Trading Platform and must to be held through maturity, either 36 or 60 months depending on the Notes you choose.

As you know, my account is a Traditional IRA. What can you tell me about the history of this ban; when it started, why it was implemented, what activity is ongoing or planned regarding the ban, if or when the ban may be lifted or modified in the future, and whether or not the ban applies to accounts that were opened before it was announced (namely mine)? Finally, as my IRA custodian, what part does SDIRA play in this matter? Thanks, Rob

And the reply:
Quote
Hi Rob,

Thanks for your email.  Sorry about the delay in getting back with you.  Generally, investors selecting to open their accounts through an IRA do not intend to actively trade Notes from their accounts; they intend to hold the investment as a fixed income product for the maturity of the Note.  Foliofn, the alternative trading system through which the secondary market is operated, is a separate entity from Lending Club and is a registered broker-dealer with its own legal processes and investor requirements.  Foliofn does not currently permit IRA accounts through SD-IRA to trade on the platform.  For the vast majority of investors holding an IRA account, this is not a problem as they intend to hold the investment.  We are working with Foliofn to create a solution for the few IRA accounts that would like access to the secondary market, but we do not currently have an estimated time frame for that solution.

To make this more clear, Lending Club recently made the update to the website to prominently notify investors that at this time Notes purchased through a tax deferred individual retirement account cannot be traded on the secondary market.  I  will keep you apprised of any developments to permit trading on the secondary market.
Thank you.
Regards,

To which I responded with two emails:
Hi,
Thank you very much for your reply. I'm surprised it came as quickly as it did. Tough subject I'm sure. My reading of it is that LC and its IRA customers have a very big problem here, but hey what do I know? Hopefully, this will be quickly resolved with no impact to your customers that unknowingly are not clear on that no IRA /  FolioFn rule.

I would like to post the text of your response in full on the Lending Academy blog, with your name removed. There seems to be considerable interest so this will help spread the word so to speak, and possibly raise awareness of these facts. Please let me know if you have any objections. I know from your Disclaimer that I am prohibited from doing so without your permission.
---and---
Hi,
One more thing; just this morning 10/24/2013 10:00 am I checked your FAQ web page regarding FolioFn (see attached screen shot):
https://www.lendingclub.com/foliofn/faq.action#ga3
Still says:
Quote
3. Who can participate?

Anyone can participate. You must first sign up as an investor with Lending Club (there is no obligation to lend money), then sign up as a trading member with FOLIOfn. Both memberships are free of charge. At this moment, applicants from District of Columbia, Kansas, Maryland, Ohio, Oregon, and Vermont are not eligible to become trading members with FOLIOfn.

Maybe this should be a little "more clear" as well. Note that this FAQ answer is part of the LC website, not FolioFn's. Sincerely, Rob

The reply:
Quote
Hi,

Thanks for your feedback. I will let our Marketing team know about the FAQ. We are in the process of a big update to our knowledge base. It looks like this section has not been updated yet.

In regards to posting the response in my last email, you can do so if you wish. Thank you for asking.

Regards,


Sorry this was such a long post. Hopefully some will find it useful.