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You Can Now Open a Prosper IRA

by Peter Renton on January 30, 2012

[Update 2/29/12: Prosper announced the minimum is now $5,000 and they will waive all IRA fees if investors have $5,000 invested within two months of opening the account - they have a new page on their site about it. This is the same deal as the Lending Club IRA]

This week Prosper is set to announce the launch of an IRA option for investors. They did a soft launch of their IRA product back in November to a handful of customers but it is now available to everyone. There will likely be an announcement from Prosper on their new IRA some time this week. But you can go to right now to open your account.

The IRA will be managed by Sterling Trust, one of the leaders in self-directed IRA’s. Because this is an IRA product and Sterling Trust will be the custodian of your funds it is not as simple as just opening up a regular account at Prosper. You will have to open an account at Sterling Trust and then transfer your money there before being able to invest in Prosper notes.

You Will Need $10,000 to Open A Prosper IRA

You will be able to open a new IRA or rollover an existing IRA or 401(k) into Sterling Trust for investing in Prosper notes. But there is a catch. There is a $10,000 minimum to open an account. But the good news is that Prosper will waive all IRA management fees if you invest all your $10,000 within two months of opening your account.

This is a big deal for investors. Until now, you have had to jump through expensive hoops in order to invest in Prosper notes through an IRA. But now, it will be a relatively simple process. Peer to peer lending is an investment that is perfectly suited to an IRA. With all interest taxed at the standard tax rate, investing through an IRA will make a huge difference in the real return for many investors. I have been hoping and pushing for a Prosper IRA option for over a year now, so I say it is about time – Lending Club has had an IRA option since 2009.

What do you think? Will you be taking advantage of the new Prosper IRA? As always I am interested to hear your comments.

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{ 46 comments… read them below or add one }

Dan B January 30, 2012 at 5:35 am

Not that I would be remotely interested, but I wonder why they didn’t make the minimum $5k. Seems like a more logical amount all things considered. Also, I assume this is a no-fee IRA?


Roy S January 30, 2012 at 6:54 am

Wow! So in order to open a Prosper IRA, my wife and I both have to contribute the max amount allowed per year. Those single people are lucky that they can still contribute for 2011 and 2012 into their Prosper IRA for another few months…assuming, of course, they haven’t already contributed anything to any IRA for 2011. But after that, they’ll have to wait until next year. Whoever decided upon $10,000 is a real genius! Of course, I guess you could always roll over your existing IRA, which is probably what they are really wanting people to do.

@Peter, your post left off whether this is a traditional only or whether you can open a Roth IRA…


DT January 30, 2012 at 7:00 am

Awesome news! I will definitely act on this welcome change.


Roy S January 30, 2012 at 7:02 am

Come to think of it, having to give my information to yet another company and hope they don’t lose it on a laptop or get it stolen because their security sucks just to do business with a company that already has all of my information…well, it’s not worth it to me…


Roy S January 30, 2012 at 7:07 am

…I don’t mean to imply that Sterling’s IT security sucks, just that there have been a lot of other companies who were supposed to have good security and then proceeded to have all of their data…er, our data stolen! I just don’t like the odds of having my information stolen with every additional company I do business with…


TekGems January 30, 2012 at 10:26 am

If Prosper wants to make IRA an option (like LendingClub), I don’t think its a bad idea to make the process more seamless for the person applying. $10k is too high for me. I opened up a SEP-IRA and Roth IRA at Charles Schwab for a much lower minimum with free trades of Schwab-owned funds.


Mike January 30, 2012 at 11:15 am

Sterling Trust has to be better than CAMA, Lending Club’s custodian. I have not been impressed by their customer service, and a quick google search shows I am not alone in that opinion. I actually hope that LC will transfer custodianship to another group before I need to access those funds.


Wes January 30, 2012 at 12:04 pm

Prosper is late to the game, again. Lending Club waives IRA fees if you invest $10K by the end of a year. Much easier to do. And they processed my application (and US mail deposit to the trustee) quickly enough that my account was active one week after dropping the check in the mail.


Glenn G. Millar January 30, 2012 at 2:59 pm

In answer to comments/questions –

Both traditional IRA’s and Roth IRA’s are eligible.
Rollover IRA’s may be part of this $10,000 and yes we are encouraging that.
When we set the $10,000 minimum we were aware that, unfortunately, it will not appeal to everyone.

Let me know if you have any additional questions.

Glenn G. Millar
Prosper Employee
Notes Offered by Prospectus


Peter Renton January 30, 2012 at 5:07 pm

@Roy, I know the $10K is a high barrier because if you are not rolling over your IRA you will need to open your account between January 1 and April 15 each year and make two years contributions. My guess as to the reason why they didn’t make it $5K like Lending Club is that they have had more demand for IRA rollovers than for setting up a new account.

@TekGems, Unfortunately, because both Lending Club and Prosper use third party custodians for their IRAs it will always be more complicated than opening up an account at Schwab or Fidelity.

@Mike, I was no fan of EntrustCAMA which is where I opened my first Lending Club IRA. But last year they switched to SDIRA and when I opened a Roth IRA with them the process was much smoother.

@Wes, I think you will find the timeline will be similar with a Prosper IRA. And I agree Lending Club sets the bar lower with the $5K minimum.

@Glenn, Thanks for the clarifications, I assumed it was for traditional and Roth IRAs but I didn’t have that information.


Mike January 30, 2012 at 5:20 pm

I will see if I can change my custodian to SDIRA without opening another IRA account. Thanks for the info, Peter.


Ryan January 31, 2012 at 3:18 pm

Great news! Thanks for the update.


White Coat Investor February 7, 2012 at 12:01 pm

The $10K limit is stupid. Seriously people, how hard is it to see that IRA contributions are $5K ($6K if over 50) a year. Basically it’s rollover IRAs only, or else you’ve got to find someone who somehow has enough cash to do two IRAs at once early in the year, but for some reason didn’t have enough to do an IRA a year before. Yea, that’s a lot of people.

And Sterling Trust? Ugh. Look at those fees!

$225 annual fee. $50 late fee on that annual fee. $30 a year for paper statements (what, do they print them on sheets of gold?)

But wait, there’s more. Let’s decide you no longer like your prosper IRA. Now you get to leave. What’s the damage? Well, it starts at $200. Then it’s $100 per asset. I hope that isn’t per prosper loan. It would really suck to pay $100 on a $25 asset. And don’t forget the $25 “special handling fee” in case you need “special handling” (which you almost surely will.)

Don’t do a $2000 IRA with these guys. If you paid $225 annual fee plus just $200 to leave after a year, you’re looking at starting out with a negative 21% return.

It’s a little unclear if the fees Prosper waives if you do invest $10K include the Sterling Trust $225 annual fee and the $200 “hit me in the butt on the way out fee.” Perhaps you could clarify Peter.


White Coat Investor February 7, 2012 at 12:08 pm

The Lending Club IRA fees aren’t much better, but at least they’re better. $60 annually, $20 paper statements, and $150 when you leave.


White Coat Investor February 7, 2012 at 12:09 pm

You’re got to have pretty sizable accounts in the IRAs before you’re better off paying these fees instead of the taxes on your earnings.


Peter Renton February 7, 2012 at 1:00 pm

@White Coat Investor, It is obvious that Prosper is targeting the rollover crowd because as you say there will be very few people with enough money sitting around to make two contributions in the first three and half months of the year. My guess is, and I have no official confirmation on this, is that they will reduce the amount to $5,000 at some point but right now they are just focusing on rollovers.

And yes, I think it is a very expensive option to open an IRA for less than $10K at Prosper and $5K at Lending Club. And keep in mind at Lending Club you have to make another $5K investment within 12 months to ensure you don’t pay those fees. But you really don’t want to be paying those fees yourself. If you have less than these minimums to invest you should keep it in a taxable account.


Glenn G. Millar February 7, 2012 at 1:11 pm

Your concerns are noted. Unfortunately, this is out of my area of expertise, so I have turned your questions/comments over to the investor side. We should have an answer up by the end of the day or first thing in the morning which may help.


Glenn G. Millar
Prosper Employee


CA-Lender February 7, 2012 at 2:12 pm

I think the whole reason for the $10,000 minimum is so that it is limited to fewer investors, to make sure they can work out any bugs.

I’ll bet that within the next 12 months, that minimum will drop to $5000.


Mike February 7, 2012 at 7:04 pm

@ White Coat Investor: I believe LC IRA fees are waived if you are over 15k with their initial custodian, CAMA. I haven’t paid a penny in fees in the two years I’ve had my SIMPLE with them. By the way, I enjoy reading your blogs.


CA-Lender February 7, 2012 at 7:52 pm

Since is the the IRA thread, I had a “tax related” (none IRA) comment, and I hope it’s ok to add it here.

The way Prosper reports interest and defaults, makes investing with them in a taxable vehicle a bit disadvantageous (for some). I’ll explain, and use the amounts from my 1099-OID as factual examples. I have $100k invested at Prosper, and my 1099-OID showed $16k interest (OID) and $4k in defaults (1099-B), which show up as capital losses. Here’s the problem. Capital losses are only deducted against capital gains, but you cannot report more then $3k per year of losses. Personally, I have enough capital loses from 2008 to deduct $3k per year for the rest of my life. I cannot deduct the $4k in defaults.

So, bottom line, I will pay taxes on $16k of earnings, while, in reality I only earned $12k (interest less defaults), and at my 31% (combined Fed and CA) tax rate I will pay $5k ($16k *31%) in taxes, making my effective tax rate 42% ($5k / $12k of net earnings). (Way more then Mitt Romney)

I can imagine this could be a real issue for very large portfolios (ie reflective-rupee), if they don’t have large capital gains in addition to their interest income.

Also, not sure if this is the case, but, I seem to recall in 2009 or 2010 (when I had a small amount with LC), they issued 1099s only if EACH note earned over $10 of interest, so if one invested in $25 notes, they would never see a 1099. I had $5000 invested with them, all in $25 notes, and never got a 1099 Obviously, this is not correct reporting of interest, but just wondering if LC still does it that way. If so, sshh, don’t tell their tax department, I’ll be moving my money back to LC.

Note: I don’t think it’s a “Prosper” reporting issue, but an IRA / legislative issue.


Mike February 7, 2012 at 8:47 pm

Yikes! Sounds like you need to make an appointment with Mitt’s accountant!


Peter Renton February 8, 2012 at 12:05 am

@CA-Lender, This is a very astute point. If you have a large portfolio and more than $3K in defaults you want to make sure you can deduct your defaults from your capital gains.

As for Lending Club I believe they stick with the letter of the law which states (as I understand it) you must receive a 1099 if you receive more than $10 in interest from any security. And because each note is a separate security, if you have only $25 notes in your portfolio then you will simply never receive a 1099 from Lending Club. It is actually more confusing if you have a mix of notes of $25 and above. Then you will receive a 1099-MISC (mine arrived in my account a week ago) you will think the number Lending Club gives you is the amount you have to report on your return whereas it will likely be an understatement of your interest earnings. Complicated.

I like that Prosper just includes all your interest on your 1099. Although you still need to include late fees and deduct service fees and defaults but all that is on the Year End statement.


Glenn G. Millar February 9, 2012 at 5:52 pm

Hi Folks,

It took me a little more time than I thought, but I have some answers for you.

1) Maintenance Fees – The fees quoted above are from the Sterling website, not from the Prosper page. For Prosper investors, there are no fees the first year of the IRA. That means no $225 fee, nor any late fees on the annual fee. We are currently evaluating what the costs will be in year 2 and subsequent years. If we do not discount them, then they would be $225 a year. The reason for the annual fees is that unlike other IRA’s with other investment brokerage, where the brokerage is making money on the investment itself, the annual fee is the only way for Sterling to make money for their work.

2) Paper Statement Fee – Yes, there is a paper statement fee. But really, this is for the environment. To send a paper statement, there is not only the statement, but the envelope. Most people prefer electronic versions and toss their paper statements which just kills trees. All statements are sent electronically and can easily be printed on a home printer. Thus, the fee can be easily avoided and hopefully saves a few trees.

3) Fee For Moving Your Funds to a Different Management Company – This is pretty standard no matter where your IRA is and the fee is certainly within the typical range.

4) $10,000 Minimum – Based on your feedback, we are currently evaluating whether a smaller number would have been a better choice. CA-Lender may be right about this. Which begs the question, did he bet on the Giants or the Patriots? Stay tuned.

Let me know if you have any additional questions.

Glenn G. Millar
Prosper Employee
Notes Offered by Prospectus


CA-Lender February 9, 2012 at 5:59 pm


I was going to bet on the Pats, but not being a big sports bettor, never got the bet down…so, I made money with my inaction.

(Note: The NY Giants had already cost me a ton on their beating of my 49ers, so the “non-bet” turned out a good investment)



Glenn G. Millar February 9, 2012 at 6:43 pm

Oops – One minor mistake. I had stated $225 per year in fees. These are the actual Sterling Trust Fees for the second year if we don’t make any reductions.

$1 – $249,999 in account – $200
$250,000 to $499,999 – $250

Glenn G. Millar
Prosper Employee


Peter Renton February 9, 2012 at 11:36 pm

@Glenn, Thanks for the detailed response and for clearing up the issue on fees. I hope we can get that initial investment down to $5K so we open the door for individuals to start a new IRA.


White Coat Investor February 13, 2012 at 8:13 am

$200 might be a standard exit fee where you invest, but not where I invest. Let’s take a look:

Firm Exit Fee
Vanguard $0
Bridgeway $0
Zecco $0
Scotttrade $0
Fidelity $50
Schwab $50
Wells Fargo $50
Many 401Ks including the TSP $0

I’m currently trying to decide whether to open an IRA at lending club or at prosper. Indefinitely waiving/covering the $225 per year fee and lowering the exit fee to something a more informed investor would consider standard (say….$0-50) would go a long way.


Glenn G. Millar February 13, 2012 at 1:51 pm

@ White Coat – Those are definitely marked differences. However, the difference is that these are not custodians of self-directed IRA’s specializing in alternative assets. Because our notes are not publicly traded securities they are classified as alternative assets and we do not know of any Self Directed Custodian with a lower termination fee.

On another note, if we give a great return and great service, hopefully an investor will never need to trigger the termination fee. :)

Hope that helps.

Glenn G. Millar Employee
Notes Offered by Prospectus


White Coat Investor February 14, 2012 at 8:53 am

Hopefully. But you should be so confident in your level of service (that no one will ever want to leave) that you should lower it to $0. :)

I think Prosper ought to pay the annual self-directed IRA fees out of the fees it generates from the loans. Take it out of the borrowers, not the investors.

Just my opinion.


Kyle February 16, 2012 at 4:52 pm

On the fees debate, it feels like there is a camp of investors who see Prosper as indebted to them and thus should take care of fees. Allowing IRAs is a great way to create investment dollars for its loans, but this is more of a favor to the lenders than it is to Prosper. IRAs are annoying for any financial to deal with, the fees are what they are, because thats the cost of doing business and all the work of setting up and maintaining your account.


Peter Renton February 17, 2012 at 3:15 am

@Kyle, I think most of us are used to dealing with the Schwab’s and Fidelity’s of the world where IRA fees are a non-issue. If we all had a lot of experience investing in Self-Directed IRA’s I doubt we would be having this discussion.


Neal Smith February 27, 2012 at 4:59 pm

Peter wrote

“The reason for the annual fees is that unlike other IRA’s with other investment brokerage, where the brokerage is making money on the investment itself, the annual fee is the only way for Sterling to make money for their work.”

Well, Prosper is making money on the investment and can make some suitable arrangement with Sterling to cover those fees. Rmember, with IRA accounts you will have large sums incoming via rollovers that don’t get invested all that quickly. Free cash in Prosper’s coffers.

Since most of my $ is tied up in IRAs, I was very excited about the new Prosper IRA offering. Can’ tell you how let down I feel right now. (No LC in my state).

By the way there is nothing in the enrollment paperwork about first year fee forgiveness.


Peter Renton February 28, 2012 at 4:09 pm

@Neal, I have heard that Prosper will be changing their minimum to $5,000 for a no fee IRA which will be in alignment with Lending Club. Will that make a difference to you? Or do you feel that they should be more flexible in the speed with which you invest your money?


neal smith February 29, 2012 at 7:25 am

@Peter, no fee IRA would be great news! Minimums and timing are not issues for me.

More thoughts about Sterling’s $200 annual fee…on a $10,000 account, Prosper earns $100 per year in lender fees for all it does – establish the marketplace, service loans, legal, regulatory and more. On the same $10,000 account, Sterling wants $200 annually… for what? Doesn’t make sense.


Peter Renton February 29, 2012 at 2:26 pm

@Neal, I imagine that there is some paperwork involved for Sterling Trust and that will have a cost. They are certainly not going to providing custodian services without making a profit. The $200 fee doesn’t seem unreasonable to me.

I just updated the blog post (check out the new paragraph at the end) because Prosper has officially announced waiving fees for investors making a $5,000 investment.


Neal Smith March 1, 2012 at 12:56 am

Hurray to waived fees, not just for the first year but ongoing annual fees too, per the new footnotes on the Prosper IRA page!


Mike March 1, 2012 at 5:43 am

That makes Prosper more attractive than Lending Club in this respect. I believe your IRA balance has to be above 15k to qualify for fee waivers at LC.


Peter Renton March 1, 2012 at 5:17 pm

@Mike, That is not the case. Prosper is merely aligning themselves with Lending Club now. This from LC’s IRA signup page:
* To qualify for a no-fee IRA through SDIRA Services you must have an initial minimum balance of $5,000 or more in Lending Club Notes and maintain this minimum invested balance for the first 12 months. To continue to qualify for the no-fee IRA after the first year, you must maintain an invested balance of $10,000 or more in Lending Club Notes.


Mike March 1, 2012 at 5:30 pm

Thank you for the clarification, Peter. Looks like LC has relaxed their requirements since I opened up my SIMPLE IRA two years ago.


Glenn G. Millar March 15, 2012 at 4:02 pm

By the way, for those of you who haven’t heard, my last day at Prosper is tomorrow, March 16.

On Monday, I start as the VP of Marketing for Though I will no longer be in P2P, I’ll still be in the financial industry, so perhaps some of us will cross paths again.

And now as a non-employee, I can legally say that Prosper is a great investment, as I am a personal investor. :)

Best of luck to you all,

Glenn G. Millar
Prosper Employee (for another 1 1/2 days.)


Peter Renton March 15, 2012 at 4:29 pm

@Glenn, Well let me say I have always appreciated your voice here on the blog and you will certainly be missed. I hope your successor will also take an active role – it is always good to hear from someone inside Prosper. Best of luck to you.


neal smith April 1, 2012 at 6:08 am

Folks considering a prosper ira should be aware that folio trading is not currently alowed. They hope to allow folio trading in the future, acording to an email i received from them.


Peter Renton April 2, 2012 at 1:46 pm

@Neal, That is a fair point and an issue I was not aware of until you told me. But the Prosper IRA is still very new and I expect they will rectify this in the near future.


Neal S. June 13, 2012 at 8:14 pm

Prosper IRA accounts can now trade notes on folio. I haven’t seen any official announcement, but it works on my account.


Neal S. June 14, 2012 at 6:37 pm

Well, it worked for one day. As of today, I can no longer get to folio for myt IRA account.


Peter Renton June 15, 2012 at 4:36 am

@Neal, Interesting. Maybe they are deciding what to do with Folio. It is strange they would have it working for one day and then pull it down.


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