Author Topic: Folio and IRAs  (Read 110842 times)

Bohb Daishi

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Re: Folio and IRAs
« Reply #120 on: December 09, 2013, 03:04:44 AM »
More book keeping work will be required of Folio as well as annual distribution of the required IRS forms to investors. Doubtful this will be free; Folio fees may rise for LC IRA investors.

I highly doubt fees would rise just because of that.  It seems like the IRA paperwork is far less work for them than the 1099-B's that they already have to distribute for taxable accounts.

It's highly likely that the 1099-B process is entirely automated, so there is very little work on that end.
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core

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Re: Folio and IRAs
« Reply #121 on: December 19, 2013, 09:39:09 PM »
Randawl posted this in another thread:

Speaking of shutting down Folio for IRAs. . . Check out this new pararaph LC is using in their emails when responding to IRA applications from lenders:

Please note that individual retirement accounts (IRA) may not participate in the Note Trading Platform, which means that you will not be able to purchase or sell Notes on the secondary market. Lending Club Notes purchased through an IRA must be held through maturity.

When I opened my wife's IRA about a month ago, this paragraph was not included in the correspondence.

It seems they are slowly moving in that direction.  If they thought they were going to have things worked out they wouldn't be increasing the visibility of that snippet.  Strange that they are doing absolutely nothing to let more people know ahead of time. 

And before anyone says it.... Grandfathering such a thing makes no sense to me.  Either a thing is legal tax-wise or it is not.   The IRS does not look at individual companies and give their blessings to every newfangled thing that pops up.  Custodians and taxpayers are responsible for adhering to the tax laws as they stand.  Certainly the IRS and the tax court can interpret.  The IRS doesn't grandfather people who got involved in a situation which wasn't legal in the first place.  LC itself could grandfather IRA account holders but only if it was kosher in the first place.  Which would mean it would still be legal for new users, so what would be the point in shutting them out.

There's only 11 days left before they'll have to wind things down for IRA holders if they're going to do so by the end of the year.  I still think odds are fair they'll do so but I would have expected more communication by now.  Wait a minute, what am I thinking?  This is Lending Club.  The champs of telling customers important things after the fact.  I'll bet the sinister network of journalists knows exactly what's going on though.

GS

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Re: Folio and IRAs
« Reply #122 on: December 20, 2013, 08:48:17 AM »
We don't even know for sure if this is about taxes and legality.  It could be that Folio wants to cut off IRA accounts because of the additional accounting and paper work burden.  Or maybe Folio told LC they want an additional yearly fee to handle IRA accounts and LC balked, since they advertise free IRAs if you have over $10K.  So far, the "tax problem theory" is just theory.

Beekaycee

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Re: Folio and IRAs
« Reply #123 on: December 20, 2013, 09:17:08 AM »
We don't even know for sure if this is about taxes and legality.  It could be that Folio wants to cut off IRA accounts because of the additional accounting and paper work burden.

This rings true to me, GS
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core

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Re: Folio and IRAs
« Reply #124 on: December 20, 2013, 09:33:49 AM »
True, it is only a theory.  But if Folio and LC are having a disagreement, why would LC post that message saying that trading was prohibited _months_ ago, and on a page that few people are likely to see?  And not do anything further since then?  It would make far more sense to not say a word until they were confident no agreement could be reached or when trading was about to be shut down..  If they wanted to rally support or something then it would have been much more visible.  In either case it probably would have been worded with a more cautious tone.

Everything about this screams C.Y.A. to me.

Inflationhawk

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Re: Folio and IRAs
« Reply #125 on: December 20, 2013, 09:47:22 AM »
Randawl posted this in another thread:

Speaking of shutting down Folio for IRAs. . . Check out this new pararaph LC is using in their emails when responding to IRA applications from lenders:

Please note that individual retirement accounts (IRA) may not participate in the Note Trading Platform, which means that you will not be able to purchase or sell Notes on the secondary market. Lending Club Notes purchased through an IRA must be held through maturity.

When I opened my wife's IRA about a month ago, this paragraph was not included in the correspondence.

It seems they are slowly moving in that direction.  If they thought they were going to have things worked out they wouldn't be increasing the visibility of that snippet.  Strange that they are doing absolutely nothing to let more people know ahead of time. 

And before anyone says it.... Grandfathering such a thing makes no sense to me.  Either a thing is legal tax-wise or it is not.   The IRS does not look at individual companies and give their blessings to every newfangled thing that pops up.  Custodians and taxpayers are responsible for adhering to the tax laws as they stand.  Certainly the IRS and the tax court can interpret.  The IRS doesn't grandfather people who got involved in a situation which wasn't legal in the first place.  LC itself could grandfather IRA account holders but only if it was kosher in the first place.  Which would mean it would still be legal for new users, so what would be the point in shutting them out.

There's only 11 days left before they'll have to wind things down for IRA holders if they're going to do so by the end of the year.  I still think odds are fair they'll do so but I would have expected more communication by now.  Wait a minute, what am I thinking?  This is Lending Club.  The champs of telling customers important things after the fact.  I'll bet the sinister network of journalists knows exactly what's going on though.

Agree that grandfathering makes no sense and that would not occur.  Also agree that IRS would not "look at individual companies and give their blessings to every newfangled thing that pops up."  As such does this mean you think Prosper is going to stop allowing trading on IRA accounts?  Why would the IRS allow Prosper to do it and not LC?  Or do you think this has nothing to do with the IRS and is a dispute between LC and Folio? 

From my discussion about this with an LC rep, I got the strong indication (but no direct confirmation) that this was likely a temporary situation and not a unilateral decision by LC to stop allowing trading on IRA accounts permanently. 

I'll stand by my theory that this is a temporary situation and that eventually trading on IRA accounts will be overtly allowable by LC in time.  I have no idea whether it's IRS related or a dispute between LC and Folio.  I was thinking IRS, but could see it also being a dispute with Folio.  For those that have been actively trading the latter is obviously better.

GS

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Re: Folio and IRAs
« Reply #126 on: December 20, 2013, 11:35:01 AM »
True, it is only a theory.  But if Folio and LC are having a disagreement, why would LC post that message saying that trading was prohibited _months_ ago, and on a page that few people are likely to see?  And not do anything further since then?  It would make far more sense to not say a word until they were confident no agreement could be reached or when trading was about to be shut down..  If they wanted to rally support or something then it would have been much more visible.  In either case it probably would have been worded with a more cautious tone.

Everything about this screams C.Y.A. to me.

Core, your guess is probably better than mine.  Whatever is happening (and note, I'm not ruling out the tax liability theory) I think LC posted the notice so that when/if something does change (and I expect we'll know by Jan 1st if something is going to change) they can tell angry investors who were cut off from Folio (if that is what indeed will happen) that they shouldn't be surprised because they posted the notice (in some obscure corner) on their website months ago...

But by my way of thinking, whether it is an IRA fee dispute or a tax problem, either one should have a workable solution.  Perhaps it's both.  Maybe the SEC or IRS told LC/FolioFN that they need to create IRA accounts for Folio transfers, and Folio said we can do that, but we want a $100/yr IRA account fee per customer ... and it's turned into a stand off...

Who knows.  Some answers and clarity would be nice.  Folio is a part of my strategy and I don't like investing when the rules are changed mid-game. 
« Last Edit: December 20, 2013, 11:39:56 AM by GS »

edward

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Re: Folio and IRAs
« Reply #127 on: December 20, 2013, 01:24:29 PM »
If that's the case, I wouldn't mind paying the $100/yr in order to maintain access to Folio trading. In that case, just let the investors choose if they want to pay for it or not.

Rob L

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Re: Folio and IRAs
« Reply #128 on: December 20, 2013, 01:46:56 PM »
For now it's all a know unknown.

I'm IRA and I haven't traded any Folio notes in many months nor bought any fresh notes since 12/6 (probably should have stopped that even sooner).
I'll decide what to do when this becomes a known known. I will not lock down my investment with no escape for 36/60 mo. If trapped (after the fact) at least my account run off has already begun.

I do believe something reasonable will be worked out in the future, but for the past and now it looks like a probable tax mess.
Also I too wonder if LC will electronically shut down IRA/Folio trading on or before 12/31 to prevent this spilling into the next year as mentioned above.

Randawl

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Re: Folio and IRAs
« Reply #129 on: December 20, 2013, 02:46:25 PM »
I hope I'm wrong, but at this point I think the most likely scenario is LC is playing CYA.  They're just not sure yet how to deal with all of the IRA accounts that have traded or are actively trading.  They don't have any clarity from the IRS and who knows what the correspondence between LC and Folio is at this point regarding this issue.

core

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Re: Folio and IRAs
« Reply #130 on: December 20, 2013, 10:02:24 PM »
Perhaps it's both.  Maybe the SEC or IRS told LC/FolioFN that they need to create IRA accounts for Folio transfers, and Folio said we can do that, but we want a $100/yr IRA account fee per customer ... and it's turned into a stand off...

Heyyy, I like that one even better.  LC screws up in the beginning when setting this up.  FolioFN knows they have them bent over a fire and tries to get more money.  Back room deals gone sour.  A cover up.  It's got all the makings of a good movie.

This all, however, is missing the more important issue which is what happens to all the people who have already traded.  Some could have traded many multiples of their entire account value.  There could be a lot of money on the line just for past misdeeds.  A new deal will not change that.

Rob L

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Re: Folio and IRAs
« Reply #131 on: December 21, 2013, 06:24:23 PM »
Not to quote myself, but to quote myself:

Folio fees may rise for LC IRA investors.

If Folio wants more money to implement LC IRA street legal, then where will it come from?

core

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Re: Folio and IRAs
« Reply #132 on: December 22, 2013, 12:28:07 AM »
If Folio wants more money to implement LC IRA street legal, then where will it come from?

The money will come from you, the customer.  You pay for it, you die, and you go to hell.  That's how it always works.  LC has absolutely no motivation to keep a relatively small group of IRA investors happy.  Certainly not enough motivation to dip into their own profits.  There are people literally waiting in line to invest, so from LC's perspective, if they have to lose a very small few in order to not cave into Folio's demands then that's perfectly OK.  If I was LC, I'd tell Folio to go stick it.  And then I'd go start looking for another broker-dealer to handle the rest of the non-IRA accounts too.  For whenever the existing contract is up.

From an investor perspective though, $100/yr per account, paid by the investor, isn't unreasonable at all.  I'd gladly pay that.

Rob L

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Re: Folio and IRAs
« Reply #133 on: December 22, 2013, 10:25:13 AM »
From an investor perspective though, $100/yr per account, paid by the investor, isn't unreasonable at all.  I'd gladly pay that.

Agreed; and hope for some resolution along those lines (and soon) though haven't ruled out a possible increase of the 1% sale fee for IRA accounts as well.
Not that IRA accounts are more costly to administer, but why not increase the fee. We're stuck with no way out.

core

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Re: Folio and IRAs
« Reply #134 on: December 22, 2013, 01:22:32 PM »
Agreed; and hope for some resolution along those lines (and soon) though haven't ruled out a possible increase of the 1% sale fee for IRA accounts as well.
Not that IRA accounts are more costly to administer, but why not increase the fee. We're stuck with no way out.

Well you can't exactly say that we're stuck if you're using that reason as justification for raising the trading fee.  Logically, if there is an increased trading fee, then trading has to occur.  If trading can occur then you are not stuck. ;)

I really don't think they would ever increase the trading fee to 2% or whatever just for IRA accounts.  That seems like it would be an absolute mess, and cause mass confusion especially for those traders who apparently couldn't figure out what negative yield meant back when that was allowed.  Plus in that situation Folio couldn't get their grubby little hands on more cash from people that only buy discounted notes on Folio for their IRA and hold them.