Consumer Boomer

How to Get a No Fee IRA with Lending Club

Posted: 03 May 2010 04:15 AM PDT

No Fee IRA with Lending Club is Easy!

Looking for alternative investments for your IRA money? If low interest CD’s rates got you down and your stock mutual funds got you on the fritz, then you may want to consider opening a no-fee IRA at Lending Club. Lending Club is the leader in Peer to Peer Lending club connecting lenders with investors and the potential to make a nice rate of return (the site boasts that the average investor has made over 9.5% return since inception).

Recently, Lending Club just improved their services by joining forces with EntrustCAMA to be able to offer self-directed IRA’s to all their investors.

Be sure to take advantage of a free $25 offer by clicking on the various Lending Club Links throughout this article.

New to Lending Club?

If Lending Club is new to you, be sure to check out my Lending Club Review post first. You’ll see how easy it is to open a Lending Club account and begin investing in a matter of minutes. My account is relatively new, but I just got an update that my current Net Annualized Return is 9.05%. Compare that to my current savings account rate. (Ha!)

Advantages of a Lending Club No-Fee IRA

9.5% annual returns
Tax-advantaged growth
No Fees (see rules below)
You can do Roth or Traditional IRA

How to Qualify for a No-Fee IRA

To qualify for no-fee IRA, you must have an initial minimum balance of $10,000 and maintain an invested balance of $10,000 or more in Lending Club Notes, thereafter. Once you open the account, you have a few options on what of how you want to manage the notes in your portfolio. You can use their portfolio builder to design a portfolio for you (this is what I did and is super easy). You can do the research yourself and choose the notes individually. Lastly, you can open a Prime Account and let Lending Club manage the notes for you (kind of like a mutual fund)

The PRIME account allows you to invest your money in a more hands-off fashion by having Lending Club administer for you. You specify investment parameters and then we put the money to work according to your instructions. We also verify you want to continue with the program periodically.
As mentioned above, they offer a no-fee IRA for accounts keeping an invested balance of $10,000 or more by waiving the $150 annual fee charged by the custodian for the life of the account. You can do rollovers, transfers, and contributions. If you are interested in getting started you just need to sign up for a Lending Club account.

How do you invest in a Lending Club IRA?

If you are interested and already have a Lending Club account, you’ll have to start the IRA account opening process. First, log out of your current Lending Club account, and be sure to use a different email address than the one your registered with previously. Please complete, print, sign, and mail your IRA forms to the address provided by the custodian EntrustCAMA. EntrustCAMA will then process transfers and rollovers. Once received, the funds will be sent to your Lending Club Self-Directed IRA account.

Next, if you would like to use a PRIME account in conjunction with your IRA, print the attached form, and fill in the personal information (name, address, SSN, etc), and the investment preferences. At this time the preferences are simple – indicate which interest rate you want the money invested in. The interest rate is the pre-fee, pre-default rate. Your choices are 11%, 13%, or 15%. The higher the rate, the higher the default risk. Please leave the account # blank. Also, please note that that they charge a 0.8% fee for PRIME accounts. The fee is charged when the funds are loaded.

Why is this the Lending Club IRA Big News?

Making 9.5% on your money is nice, but when you’re taxed that brings the yield down considerably (still better than current high yield savings account rates right now). Being able to invest into Lending Club notes in your IRA allow you to get tax deferred status. Now you control when you pay the tax.

The other potential benefit is to have reduced volatility. If you’ve been in the stock market the past few years, you know first hand what “volatility” means. Lending Club offers an investment that is not correlated with the stock market and should still perform well if the market takes a dump on us again.

Lending Club Requirements

To be able to invest into Lending Club, you first have to see if you live in a state that is eligible. Here’s the list taken directly from Lending Club’s site:

Individual lenders can invest in Notes if they are a resident of one of the following States: California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Kentucky, Louisiana, Maine, Minnesota, Missouri, Mississippi, Montana, New Hampshire, Nevada, New York, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin, West Virginia, and Wyoming.

Lending Club also have income and net worth requirements. Once again, taken directly from their site (click here to see their FAQ page):

Individual lenders who are residents of states other than California or Kentucky must have (a) an annual gross income of at least $70,000 and a net worth (exclusive of home, home furnishings and automobile) of at least $70,000; or (b) have a net worth of at least $250,000 (determined with the same exclusions);

If you reside in California, you must (a) have an annual gross income of at least $85,000 and a net worth of at least $85,000 (exclusive of home, home furnishings and automobile); (b) have a net worth of at least $200,000 (determined with the same exclusions); or (c) agree not to invest any more than $2,500 in Notes if you do not meet either of the tests set forth in (a) or (b).