Purchasing vested company options within traditional IRA

[Guest e39dinan]

Hello,

Can I use cash from a traditional IRA to exercise vested (but non-qualified) stock options from my nonpublic employer? I do not have sufficient funds outside of the IRA to do this, and I would like to hold onto the stock for a long time.

Any advice would be much appreciated!

[QDROphile]

Your use of 401(k) funds to pay the exercise price would start with a distribution from the IRA, with the attendant tax consequences.

The IRA cannot in any way "buy" the options or the stock, if that is what you are getting at. If you try that, the entire IRA balance will be included in your taxable income because the transaction would be a prohibited transaction that destroys the IRA.

[jpod]

This is not responsive to your question, but check your option agreement (and the underlying option plan document, if there is one) to see if you can do a "cashless exercise" (and also "cashless tax withholding," if there is a built-in gain).

[Guest e39dinan]

Thank you for your replies. Very much appreciated!

[John G]

You may be best served if you can continue to hold the options if they are not expiring.

Second option, there are companies that will arrange for a fee (something akin to margin plus some transaction costs) to buy the stock and sell it. This approach works if the options are expiring and the underlying value is significantly above the strike price of the option. I have not had any dealings with these firms...your brokerage may be able to give you a reference based upon their experience with these firms.