Option/Warrant Exercise inside an IRA

Submitted by Randy Brunson on Thu, 2017-09-14 12:32

Good morning,

We have a client who purchased 72,500 units in a privately held company, in November 2015, with $200,000 of after tax money. The client is not an employee of the company in question, and the client has no relatives who are employees of the company. This was an arms length investment only decision.

The units were comprised of 1 share of company stock, and the right to purchase 1/2 share of company stock. We would like to exercise the right to purchase the 36,250 shares in question, and purchase those shares inside an IRA.

Can this work? Is it specifically against the regs? Is it a gray area?

Any input you have would be greatly appreciated.

Warm regards,

Randy Brunson



Submitted by Ben Meyer on Thu, 2017-09-14 15:45

  • The taxpayer can sell the personally owned units to an independent broker and also have the IRA purchase the same number of units for the IRA from an independemt source using cash already in the IRA.  Wash sale rules might apply.  Then, with the units owned by the IRA, the taxpayer can exercise the warrants or options using further cash already in the IRA.  This approach would probably be satisfactory with the IRS.  A sale or transfer of the units directly by the taxpayer to the IRA would be prohibited.  
  • But be aware that there may be a difficulty that the IRA custodian might have in assessing the value of the shares of a privately held company in order to determine the fair market value of the account each year as required by IRS regulations.  Therefore an IRA custodian will be needed who is aware and able to fulfill this requirement.

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