Exercise ISO or NSO in solo 401k?
"You have a Solo 401(k). You can fund it with cash, or I believe, with shares of your own company. You can't pull in other assets such as the ISOs from another employer. I see why that's desirable, but it's not allowed.  You wrote ""this will mitigate all tax complications with employee stock options.""  But - you can't transfer the ISOs from your job into your Solo 401(k). As littleadv notes, it's self dealing. Once the ISO is exercised there's no hiding the gain into that 401(k)."
SPX options are cash settled European style.  You cannot exercise European style options before the expiration date.  Assuming it is the day of expiration and you own 2,000 strike puts and the index settlement value is 1,950 - you would exercise and receive cash for the in the money amount times the contract multiplier.  If instead you owned put options on the S&amp;P 500 SPDR ETF (symbol SPY) those are American style, physically settled options.  You can exercise a long American style option anytime between when your purchase it and when it expires.    If you exercised SPY puts without owning shares of SPY you would end up short stock at the strike price. I can make that election to pay taxes now (even though they aren't vested) based on the dollar value at the time they are granted? That is correct. You must file the election with the IRS within 30 days after the grant (and then attach a copy to that year's tax return). would I not pay any taxes on the gains because I already claimed them as income? No, you claim income based on the grant value, the gains after that are your taxable capital gains. The difference is that if you don't use 83(b) election - that would not be capital gains, but rather ordinary salary income. what happens if I quit / get terminated after paying taxes on un-vested shares? Do I lose those taxes, or do I get it back in a refund next year? Or would it be a deduction next year? You lose these taxes. That's the risk you're taking. Generally 83(b) election is not very useful for RSUs of established public companies. You take a large risk of forfeited taxes to save the difference between capital gains and ordinary gains, which is not all that much. It is very useful when you're in a startup with valuations growing rapidly but stocks not yet publicly trading, which means that if you pay tax on vest you'll pay much more and won't have stocks to sell to cover for that, while the amounts you put at risk are relatively small. "With no match, the traditional 401(k) for someone otherwise in the 15% bracket makes little sense. I'd suggest contributing just enough if you were in the 25% bracket to be in the taxable 15% but no more. Use a Roth IRA if you are saving more than that.  I'm adding this based on OP's statement that the fees on the 401(k) range .8-1.4%. I wrote an article Are you 401(k)o’ed? in which I discuss how fees of this range negate the benefit of the mantra ""save at 25% to withdraw at 15%"" and if one were in the 15% bracket to start, this level off fee will cost you money in no time at all.  The people advising you to max out the 401(k) first, given the rest of your situation and that of the account, are misguided. I'd given them the benefit of the doubt and assume they don't have all the details.  And with all due respect to the other posters here, everyone of them a bright, valued colleague, your answers should be addressed to the OP's exact situation. 15% bracket, no match, high fees. I suspect some of answers will change on reviewing this." What is the question? Are you just trying to confirm that for self-employed, a Solo 401(k) is flexible, and a great tool to level out your tax rates? Sure. A W2 employee can turn on and off his 401(k) deduction any time, and bump the holding on each check as high as 75% in some cases. So in a tight stretch, I'd save to the match, but later on, top off the maximum for the year. To the points you listed - Your observation is interesting, but a bit long for what you seem to be asking. Keep in mind, there are 2 great features that you don't mention - a Roth Solo 401(k) flavor which offers even more flexibility for variable income, and loan provisions, up to $50,000 available to borrow from the account. My fellow blogger The Financial Buff offered an article Solo 401k Providers and Their Scope of Services that did a great job addressing this. You could open up CDs or try a few stocks. Once I saved up enough to where I was comfortable in savings and in a retirement account, I went to CDs. Once I was comfortable with CDs I started doing stocks with dividends. Now that I'm happy with what I am receiving in dividends I just recently bought a risky stock.   I highly recommend Navy Federal for CDs, if you are eligible and USAA for stocks.   Congrats! In addition to the normal limits, A Solo 401(k) allows you to contribute up to 20% of net profits (sole proprietor) or 50% of salary (if a corporation), up to $49,000. Note that the fees for 401(k) accounts are higher than with the IRA. See 401(k)s for small business. The general rule with stock options is that it's best to wait until expiration to exercise them.  The rationale depends on a few factors and there are exceptions. Reasons to wait: There would be cases to exercise early: Tax implications should be checked with a professional advisor specific to your situation. In the employee stock option plans that I have personally seen, you get regular income tax assessed between exercise price and current price at the time you exercise.  Your tax basis is then set to the current price.  You also pay capital gains tax when you eventually sell, which will be long or short term based on the time that you held the stock. (The time that you held the options does not count.)  I believe that other plans may be set up differently. "There are a couple of things that are missing from your estimate. In addition to your standard deduction, you also have a personal exemption of $4050.  So ""D"" in your calculation should be $6300 + $4050 = $10,350. As a self-employed individual, you need to pay both the employee and employer side of the Social Security and Medicare taxes.  Instead of 6.2% + 1.45%, you need to pay (6.2% + 1.45%) * 2 = 15.3% self-employment tax. In addition, there are some problems with your calculation. Q1i (Quarter 1 estimated income) should be your adjusted annual income divided by 4, not 3 (A/4). Likewise, you should estimate your quarterly tax by estimating your income for the whole year, then dividing by 4.  So Aft (Annual estimated federal tax) should be: Quarterly estimated federal tax would be: Qft = Aft / 4 Annual estimated self-employment tax is: Ase = 15.3% * A with the quarterly self-employment tax being one-fourth of that: Qse = Ase / 4 Self employment tax gets added on to your federal income tax.  So when you send in your quarterly payment using Form 1040-ES, you should send in Qft + Qse. The Form 1040-ES instructions (PDF) comes with the ""2016 Estimated Tax Worksheet"" that walks you through these calculations." "You are thinking about it this way: ""The longer I wait to exericse, the more knowledge and information I'll have, thus the more confidence I can have that I'll be able to sell at a profit, minimizing risk. If I exercise early and still have to wait, there may never be a chance I can sell at a profit, and I'll have lost the money I paid to exercise and any tax I had to pay when I exercised."" All of that is true. But if you exercise early: The fair market value of the stock will probably be lower, so you may pay less income tax when you exercise. (This depends on your tax situation. Currently, ISO exercises affect your AMT.) If the company goes through a phase where the value is unusually high, you'll be able to sell and still get the tax benefits because you exercised earlier. You avoid the nightmare scenario where you leave the company (voluntarily or not) and can't afford to exercise your options because of the tax implications. In many realistic cases, exercising earlier means less risk. Imagine if you're working at a company that is privately held and you expect to be there for another year or so. You are very optimistic about the company, but not sure when it will IPO or get acquired and that may be several years off. The fair market value of the stock is low now, but may be much higher in a year. In this case, it makes a lot of sense to exercise now. The cost is low because the fair market value is low so it won't result in a huge tax bill. And then when you leave in a year, you won't have to choose between forfeiting your options or borrowing money to pay the much higher taxes due to exercise them then." "Most people advocate a passively managed, low fee mutual fund that simply aims to track a given benchmark (say S&P 500). Few funds can beat the S&P consistently, so investors are often better served finding a no load passive fund. First thing I would do is ask your benefits rep why you don't have an option to invest in a Fidelity passive index fund like Spartan 500. Ideally young people would be heavy in equities and slowly divest for less risky stuff as retirement comes closer, and rebalance the portfolio regularly when market swings put you off risk targets. Few people know how to do this and actually do so. So there are mutual funds that do it for you, for a fee. These in are called ""lifecycle"" funds (The Freedom funds here).  I hesitate to recommend them because they're still fairly new. If you take a look at underlying assets, these things generally just reinvest in the broker's other funds, which themselves have expenses & fees. And there's all kinds personal situations that might lead to you place a portion with a different investment." When you exercise a put, you get paid the strike price immediately. So you can invest that money and earn some interest, compared to only exercising at expiry. So the benefit to exercising early is that extra interest. The cost is the remaining time value of the option, along with any dividend payments you miss. As @JoeTaxpayer points out, there might be tax considerations that make it better to exercise at one time rather than another. But those would likely be personal to you, so if the option would intrinsically have more value unexercised, in many cases you could sell it on rather than exercise it. The exception might be if it wasn't very liquid and the transaction costs of doing that outweighed the theoretical value. Vanguard has low cost ETFs that track the S&P 500. The ticker is VOO, its expense ratio is 0.05%, which is pretty low compared to others in the market. Someone correct me if I'm wrong, but you won't have to pay tax on the dividends if it's in a retirement account such as a Traditional(pay taxes when you withdraw) or Roth IRA(pay income/federal/fica etc, but no taxes on withdrawal)... 2 years is right before it becomes inactive.  Otherwise you have to take CE.  Which you need to be somewhere which will keep it updated for you.  I'd push off the CFA route unless you have a decent job available, those tests make the 7 look easy. From the instructions: If you do not need to make any adjustments to the basis or type of   gain or loss (short-term or long-term) reported to you on Form 1099-B   (or substitute statement) or to your gain or loss for any transactions   for which basis has been reported to the IRS (normally reported on   Form 8949 with box A checked), you do not have to include those   transactions on Form 8949. Instead, you can report summary information   for those transactions directly on Schedule D. For more information,   see Exception 1, later. However, in case of ESPP and RSU, it is likely that you actually do need to make adjustments. Since 2014, brokers are no longer required to track basis for these, so you better check that the calculations are correct. If the numbers are right and you just summarized instead of reporting each on a separate line, its probably not an issue. As long as the gains reported are correct, no-one will waste their time on you. If you missed several thousand dollars because of incorrect calculations, some might think you were intentionally trying to hide something by aggregating and may come after you. "The policy you quoted suggests you deposit 6% minimum. That $6,000 will cost you $4,500 due to the tax effect, yet after the match, you'll have $9,000 in the account. Taxable on withdrawal, but a great boost to the account.  The question of where is less clear. There must be more than the 2 choices you mention. Most plans have 'too many' choices. This segues into my focus on expenses. A few years back, PBS Frontline aired a program titled The Retirement Gamble, in which fund expenses were discussed, with a focus on how an extra 1% in expenses will wipe out an extra 1/3 of your wealth in a 40 year period. Very simple to illustrate this - go to a calculator and enter .99 raised to the power of 40. .669 is the result. My 401(k) has an expense of .02% (that's 1/50 of 1%) .9998 raised to the same 40 gives .992, in other words, a cost of .8% over the full 40 years. My wife and I are just retired, and will have less in expenses for the rest of our lives than the average account cost for just 1 year.  In your situation, the knee-jerk reaction is to tell you to maximize the 401(k) deposit at the current (2016) $18,000. That might be appropriate, but I'd suggest you look at the expense of the S&P index (sometime called Large Cap Fund, but see the prospectus) and if it's costing much more than .75%/yr, I'd go with an IRA (Roth, if you can't deduct the traditional IRA). Much of the value of the 401(k) beyond the match is the tax differential, i.e. depositing while in the 25% bracket, but withdrawing the funds at retirement, hopefully at 15%. It doesn't take long for the extra expense and the ""holy cow, my 401(k) just turned decades of dividends and long term cap gains into ordinary income"" effect to take over. Understand this now, not 30 years hence.  Last - to answer your question, 'how much'? I often recommend what may seem a cliche ""continue to live like a student."" Half the country lives on $54K or less. There's certainly a wide gray area, but in general, a person starting out will choose one of 2 paths, living just at, or even above his means, or living way below, and saving, say, 30-40% off the top. Even 30% doesn't hit the extreme saver level. If you do this, you'll find that if/when you get married, buy a house, have kids, etc. you'll still be able to save a reasonable percent of your income toward retirement.  In response to your comment, what counts as retirement savings? There's a concept used as part of the budgeting process known as the envelope system. For those who have an income where there's little discretionary money left over each month, the method of putting money aside into small buckets is a great idea. In your case, say you take me up on the 30-40% challenge. 15% of it goes to a hard and fast retirement account. The rest, to savings, according to the general order of emergency fund, 6-12 months expenses, to cover a job loss, another fund for random expenses, such as new transmission (I've never needed one, but I hear they are expensive), and then the bucket towards house down payment. Keep in mind, I have no idea where you live or what a reasonable house would cost. Regardless, a 20-25% downpayment on even a $250K house is $60K. That will take some time to save up. If the housing in your area is more, bump it accordingly.  If the savings starts to grow beyond any short term needs, it gets invested towards the long term, and is treated as ""retirement"" money. There is no such thing as Saving too much. When I turned 50 and was let go from a 30 year job, I wasn't unhappy that I saved too much and could call it quits that day. Had I been saving just right, I'd have been 10 years shy of my target."