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Subject:   clarification of answer
Date:   Wed, 13 Oct 2004
From:   Bob

Dear Mike,

My boss wants to know why you can't exercise an ISO in an IRA.

Bob

Answer

Date:   Wed, 24 Nov 2004

Hello Bob,

The IRA is a retirement account that is treated as a "separate taxpayer" from the owner. In order for employee stock options to qualify as ISOs, they must be held by an employee. (Internal Revenue Code Section 422(b).) The IRS has also made it clear that you can't assign ordinary income that you earned in addition to plan contributions to a retirement account.

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options - Executive Tax and Financial Planning Strategies.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.