Options Trading Tutorial

Can you hold incentive stock options in a 401(k) or Roth 401(k)

My company has instituted an employee stock option plan and will grant incentive stock options to employees. If an employee is granted incentive stock options can those options be held in the employee's 401(k) or Roth 401(k) qualified retirment account?

Public Comments

1. No. An ISO is made to you. You hold the paper. You decide whether or not you exercise the option. When you sell the stock you trigger the tax consequences. Even if the 401K could buy the stock directly from you, you wouldn't be able postpone the tax consequence of selling. (Note, wash sale rules apply to IRAs. Do not sell stock you own at a loss and then have the IRA buy the same stock within 30 days. You lose the loss permanently.)