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Author: dls12 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121114  
Subject: Re: ISO + Roth/Ed IRA Date: 3/11/1999 11:02 AM
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<<But there are specific rules that you must follow to determine the FMV of the shares when they are NOT publicly traded. So make sure that you follow the rules. You can read more about those rules in IRS Publication 550. >>

Spoke to management today, and the $1.50 is a 'defensible' FMV. That's what they said the auditors said.

<<Remember also that if your options are REALLY ISOs, and not NQ options, there is no tax event (for regular tax purposes) when your exercise...but there very well MAY be alternative minimum tax issues that you have to deal with.>>

Right. Got that today as well. The only taxable event is when the shares are sold.

What are the alternative minimum tax issues you speak of?

<<How do you figure tax free? When you sell the shares, your monster gain will be taxed. Period.>>

I'm confused. I thought any gains made within a Roth IRA are tax-free? If I were to sell my mutual fund for a *nominal gain*, and then use that cash to buy say bonds, would I be taxed?

I am using the above logic but change the mutual fund to stock (which come from exercising the options), and change the nominal gain, to monster gain. What is the difference as far as Uncle Sam is concernced?

Also, it seems all of this is subject to the following time lines: the gain will be taxed as ordinary income unless it has been two years from the date of the options AND I have owned the shares for one year.

<<[[ Oh, I'd also like put/sell this stock into my wife's Roth and daughter's Educational IRA.]]

Can't do it.>>

Right. But for a different reason. Even when the options are excercised, the shares are non-transferrable (barring death) while the company is privately held.

<< Roth and Ed IRA contributions MUST be made in cash...not in stock. >>

hmmmmm.....but what if I put 2'gs of cash in my Roth, and then use that cash to exercise my options. Wouldn't that work?

BTW - thanks for the perspective.

dls12
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