I just opened an LC account account and transferred $2k and bought $1k in notes. Now that I've looked at how much more complicated my taxes will be next year, I wish that I'd made my investment in an IRA instead.
Does anyone know if it's possible to convert an existing account into an IRA account?
Or, would I have to liquidate my investment first, which would mean that it's not worth it?
I see that LC uses an outside firm to manage "self directed" IRAs. It looks like there's a $100 annual fee which seems pretty high to me (at least for my small time dabbling). It looks like I should to fully commit to P2P, to make that flat fee worth it.
Thanks, for sharing your experience with a newb.
If you aren't trading on folio, the additional work needed for taxes is about 2 minutes.
Tax isn't really complicated. You report some interest and some capital losses (from defaulted loans).
Yea, the taxes aren't bad. It's the sales on Folio which are a pain, but you can just mail the detailed listing to the IRS with the tax return or with a certain schedule if you e-file
In the early years, LC provided little to no information about taxes, but now LC spells it out and adds it up for you. If you want an IRA anyway, I'm pretty sure you'll have to create a new account with a different e-mail address and mail a check to the IRA custodian (a third-party that manages the IRA). The $100 fee is waived if you invest $10k within a year of opening the account.
Can you open a 401K on LC, I was under the impression that they just did IRA accounts...?
There are other reasons to put it in an IRA. If you generate capital losses over 3k per year, and do not have any gains to offset the excess, you're banking losses for the future. It's not tax efficient.
By tax efficiency, I mostly mean the following. The asset class is all jacked up because the gains are taxed as interest and the losses are taxed as capital. They don't cancel each other out, but in an IRA it doesn't matter. You're right that if you eventually use the losses up, you come out equal, but my counterargument is that the unfortunate nature of this asset class is that you're always going to be generating losses--it's just in its nature. So if you're in a taxable account you better find a good way to generate productive capital gains over the long run if you want any sort of sizable account and tax efficiency. That, or just participate in this asset class in an IRA where types of gains and losses don't have tax consequences.
That I agree with. And a Roth is much preferable if you are able to use one.
So, with what both of you just said which is better for what I am think, taxable or nontaxable...?
I was intrigued with Anil's post about buying distressed notes. So, if i was to employ a strategy, apart for my normal 'P2P picks is awesome' strategy, where I am buying every distressed note I can find under $2, which would be better for me, taxable or untaxable?