I stopped working in 2013 and have to exercise stock options in 2014

[sharpie510]

So, I have nonqualified stock options that I need to exercise this month (2014). The net proceeds from this exercise will be around $130000. My ex company will withhold taxes on this amount, meaning they will withhold roughly $57000. The gain from this exercise will be considered wages on my w-2. My question is, since I am no longer employed with my company (and don't plan on working in 2014), is it possible to defer some of these "wages" by either contributing to a SEP IRA or some other tax deferred retirement plan? I would like to defer as much of this income as possible. Had I still been working, I think I would be able to defer $17500 plus a catch-up contribution of $5500 since I'm over 50 years old.

Thanks!

[disneysteve]

So, I have nonqualified stock options that I need to exercise this month (2014). The net proceeds from this exercise will be around $130000. My ex company will withhold taxes on this amount, meaning they will withhold roughly $57000. The gain from this exercise will be considered wages on my w-2. My question is, since I am no longer employed with my company (and don't plan on working in 2014), is it possible to defer some of these "wages" by either contributing to a SEP IRA or some other tax deferred retirement plan? I would like to defer as much of this income as possible. Had I still been working, I think I would be able to defer $17500 plus a catch-up contribution of $5500 since I'm over 50 years old.

Thanks!

A SEP-IRA is for income earned through self-employment so that wouldn't apply here. You're no longer with the company so you can't contribute to your 401k. If you are eligible, you could use some of the money to make your Roth contribution but that won't help with taxes.

I can't think of any way to keep this from being reportable income for 2014.

[autoxer]

You can use a traditional ira as long as your total income isn't over the limit, but the contribution is currently capped at $6,000.00 for age 50 and above.

[sharpie510]

Thanks, I'm aware of the IRA and Roth-IRA contributions that I could make, and they don't allow for much deferred contributions ($6500 for over 50yr individuals). I was hoping to be able to defer more than that amount. Since this money is earned income, can I open a SEP IRA even though the money is coming from the exercise of nonqualified stock options? Does the IRS care where the money comes from or does it just have to be earned income, or does it have to be specifically from income generated from "real" work? I couldn't find anything stating where the money needs to come from. I suppose someone that is self employed as a day trader would be able to sock away money made on the stock market into a SEP IRA.

Can I be considered self employed even if I don't plan on making any additional money in 2014, and use the proceeds from my stock exercise (this amount will be around $130000 earned income on my w-2 for 2014)? I'd like to contribute 25% of my 2014 earned income ($32500) to a SEP IRA. Is that allowed?

[Petunia 100]

Day trading results in capital gains income, not self-employed income.

To contribute to a SEP, you must have self-employed income.

Congrats on your windfall. What are your future plans?