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I have a solo 401k. My employer does not offer one. What is the correct way to exercise employee stock options with capital from the 401k to make the resulting stock an asset of the 401k?

Ideally this will mitigate all tax complications with employee stock options and nullify any concerns about capital gains tax, the spread, or alternate minimum tax on illiquid privately held shares from option exercise.

  • Are you an employee or the owner of a company with no employees? – mhoran_psprep Sep 25 '13 at 14:21
  • @mhoran_psprep I am an employee of a company where I have been granted employee stock options, I have my own for profit and incorporated business venture where I am the sole member. regardless, assume I already have a one participant 401k (aka solo 401k) – CQM Sep 25 '13 at 16:01
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You have a Solo 401(k). You can fund it with cash, or I believe, with shares of your own company. You can't pull in other assets such as the ISOs from another employer. I see why that's desirable, but it's not allowed.

You wrote "this will mitigate all tax complications with employee stock options." But - you can't transfer the ISOs from your job into your Solo 401(k). As littleadv notes, it's self dealing. Once the ISO is exercised there's no hiding the gain into that 401(k).

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    can you post more information or a source for this prohibition? 401k's can own practically any kind of security with few exemptions, even privately held ones, so how would a 401k be prohibited from using cash it already has and buying the shares from an ISO exercise? This is about exercising ISO's not "pulling in the ISOs" whatever that means – CQM Sep 25 '13 at 17:12
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    @CQM you exercise the ISO. You own them. Not the plan. Transferring to the plan would be dealing with yourself, and its a prohibited transaction. You can only transfer cash to the plan. I'm not sure even if you can transfer in-kind. – littleadv Sep 25 '13 at 17:31
  • @littleadv so I can get my employer to grant the ISO to my 401k instead? – CQM Sep 27 '13 at 6:28
  • @CQM of course not. Your 401k plan is not the employee. You are. – littleadv Sep 27 '13 at 7:16

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