Can Company Stock Options Go Into an IRA?

One of the many advantages of IRAs compared to other types of long-term savings vehicles is the broad latitude they afford in terms of choosing specific investments within the policy. People have used IRA accounts to hold everything from gold mining, oil and gas interests to investment real estate to their own family farms and ranches. You can also hold stock in corporations, as well as trade options within your IRA. But you must be mindful of the rules on prohibited investments.


An option is a type of derivative security that gives the owner the right to buy or sell a share or shares of stock in a given company at a specific "strike" price at a specific period of time. A "call" option is the right to buy, while a "put" option is the right to sell. Investors can buy or sell put and call options as speculative vehicles in their own right, or as a mechanism to control their exposure to risk. For example, an investor might purchase a "put" option in stock he already owns, ahead of a major earnings release. He pays some money for the right to buy the stock at something close to today's prices. With this, he protects himself against unexpected bad news, since someone else who sold him the "put" option has effectively taken on the risk of a bad earnings report.

Prohibited IRA Investments

IRAs provide a good deal of flexibility to the investor, but this flexibility is not unlimited. You cannot use your IRA to buy property or securities from you, your immediate family, nor any entities you and your immediate families control. You also cannot borrow money from your IRA, nor lend money from your IRA to any member of your immediate family or any entity you or your immediate family members control. You cannot pledge your IRA as collateral for a loan, nor use your IRA to invest in gems, alcoholic beverages, jewelry, art and collectibles, and all but a few forms of precious metals.

Options in an IRA

You can own options and keep them in IRA, just as you can own stock in an IRA. Not every brokerage company will allow it, but there is no problem with holding options in an IRA, provided you do not buy options in a company controlled by you or a close family member. If you do, you risk running afoul of IRA prohibited transaction rules. If the IRS gets wind of the prohibited transaction, they may disqualify the entire IRA. If this happens, you will have to pay income tax on the entire amount, plus a 10 percent penalty if you are under the age of 59 1/2.

Tax Considerations

Everything you hold in a traditional IRA grows tax-deferred, as long as you keep the money in the IRA. Everything you withdraw gets taxed at ordinary income rates. If you have a Roth IRA, then you have already paid your taxes: you can withdraw Roth assets tax free. Taxes on gains from options you hold in IRA accounts of any kind are irrelevant, but you cannot write off capital losses on options you hold in an IRA. However, if you hold options in a taxable account, you pay capital gains taxes, and can write off capital losses against gains. If you hold your options for less than a year, however, the capital gains tax is generally the same rate as your highest marginal income tax rate.