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I work for a startup company. They are about to go through their FMV evaluation and funding round, at which point I will be granted my options.

I talked to them and said I would like the ability to have my options purchased by a self-directed IRA. They said to let them know what they need to do, and will work with me.

I have been going through the logistics of how to do this without violating self dealing rules. I am aware that I cannot be given ISO options, as those can go to an employee only, and my IRA would not be an employee.

One way for sure that I can get my portion into the IRA is if they would just allow me to participate in the funding round for the amount I would be granted, in essence let me purchase my shares now just as if I was an investor. Then, as long as I stay under 50% ownership (not a problem since I will be ~0.6%), and I am not deriving any benefit from the purchase (such as guaranteed compensation, position or employment contingent) then I am fine.

That, however, would require my company to not have vesting on my shares. Also, it would require me to pay for the shares immediately.

What about NSO options? Those can be granted to non-employees. Can NSO options have a vesting period also? Can that vesting be tied to my employment? I am not deriving a benefit by that type — rather, it is the reverse: my IRA is deriving an opportunity of my employment.

(While I say IRA above, it will be a Roth IRA, but the logistics are the same from my understanding.)

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    Any update on this? The answer below isn't really sufficient.
    – Adam Nelson
    Commented Nov 4, 2014 at 13:23

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It's fair to start with a kind warning.

This matter might be too valuable to trust the expertise (and kindness) of strangers. An hour's payment to a knowledgeable tax guy is recommended.

That said, you appear to be aware of the rules against self-dealing and arm's length transactions. The fact that you are trying to pack a potentially undervalued product into your IRA sends up a red flag. A warning only, no more. It might be allowed, and I suspect it's how Romney's IRA is now worth hundreds of millions.

Back to my start - it's worth talking to a pro.

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    Agreed, I plan on having this ran by the legals or someone of expertise. It is surprisingly difficult to find any insights on this matter and found myself mainly reading DOL opinion papers and tax code directly. I say surprisingly, because as I understand it, people (may not Romney, but for sure Thiel, Levchin and other Silicon Valley types) have done this. When an opportunity comes to put what could be an explosive growth investment in a Roth, find a way, thus I am trying to :) forbes.com/sites/deborahljacobs/2012/03/20/…
    – mhoglan
    Commented Jan 17, 2014 at 19:59
  • Yes. That Forbes link was one of the articles I had in mind. I hope this situation turns super positive for you.
    – JTP - Apologise to Monica ♦
    Commented Jan 17, 2014 at 20:12

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