Halls of Shrewd'm / US Policy
No. of Recommendations: 0
Any one know using Interactive brokers know much about the Stock yield enhancement program. Any risks I should be aware of prior to signing up for it. They claim I could receive as much as usd 5,000 per year lending my shares.
Thanks
No. of Recommendations: 3
I think that's what other brokers call "fully paid lending program".
When somebody goes short in a stock, if the broker can't locate shares to borrow they will borrow stocks from accounts that have signed up for the FPLP.
I did this at Etrade. They split 50/50 the fee they get from the short sale. It was in the single digit dollars. I did not make more than $25 over the 5 years before I dropped out.
It's almost like the "you could win this car!" scratchoff flyers from a car dealer. What you actually get is a cheap piece of garbage.
It is only when somebody shorts a hard-to-borrow stock AND the broker cannot locate any lendable shares in any margin account that they reach out to accounts that have signed up for FPLP. Your chance of getting $5000 *ever* are the same as winning a car.
No. of Recommendations: 0
Thanks. Wont bother then
No. of Recommendations: 4
In addition to what Ray said, if this is in a taxable account, also consider the effect on dividend taxation. If you own a stock that pays qualified dividends (and have met the holding requirements), the dividend is taxed at a favored rate, something like 7-17% lower than your ordinary income rate. However, if the stock is loaned out when the dividend is paid, you receive the cash equivalent of the dividend, but it's *not* a dividend, it's cash-in-lieu of dividend and is taxed at your ordinary income rate. That tax difference could easily be more than you actually earn for lending the shares. And of course what you earn from lending is taxed at your ordinary rate as well.
Of course if this is happening in a tax-advantaged account, that's all irrelevant, but in a taxable account it's worth considering (and although this is for the US, it wouldn't surprise me if similar things happen elsewhere as well, so worth at least looking into, no matter where you live).
Brian
No. of Recommendations: 1
Of course if this is happening in a tax-advantaged account....
Which raises a question in my ignorant, yet paranoid, mind. If shares are loaned out of a tax-advantaged account, would the lending be considered a withdrawal from the account, triggering the 60-day clock?
Eric Hines
No. of Recommendations: 0
If shares are loaned out of a tax-advantaged account, would the lending be considered a withdrawal from the account, triggering the 60-day clock?
No.
I don't know if it makes any difference to the IRS, but the broker borrows your shares and replaces them with a cash holding as security.
No. of Recommendations: 1
will find out soon enough, but where is this ordinary income (from loaning) listed on the detailed 1099 brokerage statements?
No. of Recommendations: 2
where is this ordinary income (from loaning) listed on the detailed 1099 brokerage statements?
I'm pretty sure it's supposed to be on 1099-MISC (although not a tax advisor, etc). The income from the lending itself in box 3, the payments in lieu of dividend in box 8. Both are taxed at your ordinary income rate.
Brian
No. of Recommendations: 0
thx. i guess i'll experience its too small too matter.
on the plus side, its unlikely to trigger higher brackets on nonlinear stealth (or any) taxes.
