Human induced pluripotent stem cells (hiPSC) have been generated from different tissues, with the age of the donor, tissue source and specific cell type influencing the reprogramming process. Reprogramming hematopoietic progenitors to hiPSC may provide a very useful cellular system for modelling blood diseases. We report the generation and complete characterization of hiPSCs from human neonatal fibroblasts and cord blood (CB)-derived CD34+ hematopoietic progenitors using a single polycistronic lentiviral vector containing an excisable cassette encoding the four reprogramming factors Oct4, Klf4, Sox2 and c-myc (OKSM). The ectopic expression of OKSM was fully silenced upon reprogramming in some hiPSC clones and was not reactivated upon differentiation, whereas other hiPSC clones failed to silence the transgene expression, independently of the cell type/tissue origin. When hiPSC were induced to differentiate towards hematopoietic and neural lineages those hiPSC which had silenced OKSM ectopic expression displayed good hematopoietic and early neuroectoderm differentiation potential. In contrast, those hiPSC which failed to switch off OKSM expression were unable to differentiate towards either lineage, suggesting that the residual expression of the reprogramming factors functions as a developmental brake impairing hiPSC differentiation. Successful adenovirus-based Cre-mediated excision of the provirus OKSM cassette in CB-derived CD34+ hiPSC with residual transgene expression resulted in transgene-free hiPSC clones with significantly improved differentiation capacity. Overall, our findings confirm that residual expression of reprogramming factors impairs hiPSC differentiation.