You're not allowed to.

Employee stock options are earned income, and you can't assign earned income into an IRA to escape taxation.

Before you ask, you're also not allowed to sell your stock options to your IRA.

As for how Thiel did it? It was arguably a prohibited transaction at the time and he's likely arguing that the statute of limitations has long past.

Does the statute of limitations get you off owing the tax due today as well?

I don't know, but I'm sure the argument is that the initial transaction can't be examined any more, and the subsequent transactions were all perfectly valid.

In my opinion, the entire IRA should be considered tainted and have taxes owed on all gains since 1999.

There could also be the argument that this constitutes tax fraud (depending on whether or not the $0.001 price was significantly under the market price that investors were offered at the same time), which as far as I know means the statute of limitations doesn't apply.

The whole point of a roth IRA is that taxes are paid on the assets before they are added and the investment becomes exempt from capital gains. I'm guessing the law applies to the act of adding the options rather than exercising them, so if he paid income taxes on them and the statue of limitations have passed he is in the clear.

You don’t, you just purchase the shares directly while they are a low price.

But this isn’t really so complicated, a Roth IRA can own normal options, an options contract can be for anything, you just need someone to sell it to you and you need enough capital in the roth to exercise it.

There's not going to be a standard workflow you can Google. This is super niche. Get in contact with your company's (hopefully it's a startup, so they're willing to be flexible) stock administrator and with the company you want to use for an IRA (you may need to hunt around to find one willing to jump through the hoops).

May or may not find them to be willing, but you also won't know until you try.

This wasn't done with options. Thiel straight up bought shares in Paypal at $0.0001. The only way to make this work is buying assets that are going to increase in value by orders of magnitude.

It probably goes something like this:

1. Contribute cash to the IRA. Use IRA cash to buy stock options from someone who holds those options (e.g. yourself). Ensure that you have real paperwork to back up the price that you're paying because if you don't the IRS is going to eat you alive!!!

2. Wait until options have value.

3. Contribute additional cash to IRA.

4. Use cash to exercise options.

There might be a slightly different flow to contribute the options, consult someone who knows what they're doing.

> Use IRA cash to buy stock options from someone who holds those options (e.g. yourself)

Non-arms-length transactions, which includes you selling something to "yourself", are prohibited transactions with respect to IRAs (for pretty obvious reasons).

Wanted to add to this that there is very little that would stop IRS from taking IRA status off your account (unless you're Peter Thiel) and forcing you to sell all assets and pay capital gains if you committed a prohibited transaction. An example of such IRA violation that's fairly common is buying rental property with IRA and utilizing it for personal use.

Oh, I'd believe it! In that case even fairly valued options would be a no-go; you'd have to buy them from someone else: probably tricky, doubly so for incentive options, and it sounds like buying publicly traded stock has a major advantage here.

The article says he bought shares (at $0.001/share, I guess pretty early in the life of the company), not options. Now, maybe a startup that's willing to give you options might also be willing to sell you shares (after all, that's almost what an option is), and might be willing to sell you shares in your self directed Roth.

Sadly, I didn't think to ask the startup I worked for about this. Would have been nice to not pay taxes to diversify.

Open a self directed IRA with a company like Pensco, fund it with cash and buy the options with a check issued from that account instead of a personal check. If the options are one cent per share and eventually are worth hundreds of dollars, you can avoid the capital gains tax. You can’t withdraw it until you retire though.

> You can’t withdraw it until you retire though.

You can withdraw the original principal tax free after five years and profits can be withdrawn at any time by paying income taxes and a 10% penalty.

If you have any other assets it’d be stupid to withdraw it though. Tax-free accounts are the last one you want to draw from.