exercise of options with Roth IRA

[Guest smokeyjoe]

I have an opportunity to receive options in a privately held C corp. Can I purchase the shares at the approriate time with cash in my Roth IRA account and hold them until 59 and 1/2, then sell them and receive the distribution tax free? Could you please cite IRS code, regulations, rulings as to the validity of this transaction?

[QDROphile]

If options are granted to you, after the exercise of the option the stock will be owned by you. You cannot sell stock to your Roth IRA. See section 4975 of the Internal Revenue Code.

[Guest mjb]

This is a securities issue as well as a tax issue. All contributions to an IRA must be made in cash which prevent assigning options issued to the IRA owner to the IRA. However some option grants issued to employees/shareholders allow related parties such an IRA controlled by the IRA owner to purchase the options. In this situation the IRA applies directly to the issuer to purchase the options with cash and the options are owned by the IRA. You need to have counsel review the offering memo to determine if another person such as an IRA can purchase the options issued to the employee and for any other state or fed securities law issues. You need to check with the IRA custodian to confirm that options can be held in the IRA account and that there will not be any loaning of funds to the IRA by the IRA owner. If you are a substantial holder of the C corp stock you will need to review the Prohibited transaction rules to see if the purchase by your IRA will benefit you personally.