Incentive Stock Options
These instructions refer to Incentive Stock Options that are exercised upon vesting.
The spread on ISOs isn’t subject to payroll taxes and ISOs are taxed when you exercise them and/or when you sell them.
For this reason, we recommend creating an after tax account with the Capital Gains tax treatment, creating a lump sum pension for the value of the ISOs coming into your plan, and directing the lump sum pension to the after-tax account as follows:
Vested Shares
Navigate to to My Plan > Accounts and Assets
Add an Investment account.
Make sure to create a specific label such as "Ace Employee ISO," so you can distinguish it from your 401(k).
Enter the account balance
Select the Capital Gains tax treatment (when you sell shares, gains/losses are taxed as capital gains.)
Enter the Cost Basis and update manually as needed.
Since ISOs are invested in your company stock, you can set your rate of return on either:
An assumed equity return rate, or
Actual performance of your company’s stock (update periodically).
Future Shares
Navigate to to My Plan > Income > Pensions
Press add a pension ➕
Select lump sum
Give the pension a descriptive name, “ACE Employee ISO,” for example
Enter the value of the ISOs coming into your plan
Enter the date of the grant
Direct the lump sum pension to the new after-tax account
Select No for the tax treatment