Lending Club Introduces Self-Directed IRA in Peer-to-Peer Lending

Lending Club, the only SEC registered peer-to-peer lending site, today announced the introduction of the first ever self-directed IRA to let lenders save for retirements through P2P lending. The new self-directed IRA accounts are managed by EntrustCAMA, a custodian of both self-directed and real estate IRAs.

Currently, Lending Club self-directed IRA plan participants can choose to invest in either a Roth or Traditional IRA (for individuals) or SEP or SIMPLE IRA (for small businesses) through the new service. And investments in the Lending Club self-directed IRA, like investments in an ordinary IRA account, also enjoy tax free growth (which means that contributions to the Lending Club self-direct IRA are also subject to the annual IRA contribution limit, which is at $5,000 for 2008). To enroll in the program and contribute for the 2008 tax year, you need to:

  1. Complete the secure online account application with EntrustCAMA;
  2. Print, sign, and mail your forms to the address provided by EntrustCAMA (Must be postmarked by April 15, 2009 for 2008 tax season);
  3. Fund your account with a check, 401(k) rollover, or existing IRA account transfer to Lending Club.

According to Lending Club website, the self-directed IRA plan charges a flat $250 annual account maintenance fee (there will be no fee in 2009 if the account is opened before April 15).

I have been lending through Lending Club for a little over a month (check out my Lending Club review and lending portfolio if you are not familiar with LC) and so far I am quite happy with how things go with LC, mainly because there’s no late payment yet. Despite the good but still very short experience, I don’t think I will get a self-directed IRA through Lending Club for myself because of the high fee, if nothing else. I don’t have a self-directed IRA account, so there’s no way for me to compare it with what others charge, but a $250 annual fee is more than 5% of the total allowed contribution of $5,000. That’s just too much for an IRA account.

It’s good that P2P lending now becomes an option for retirement savings. But at this cost, I think it’s better to just use it as a small diversification of ordinary investments.

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