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Employer Stock: Incentive Stock Options (ISOs)

This article describes how to enter ISOs in your Plan.

Nancy Gates avatar
Written by Nancy Gates
Updated over 2 weeks ago

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 RSUs 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

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