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Lesson 16. Frequently Asked Questions > Insider Trading - Pg. 80

Frequently Asked Questions 80 Question: Can I borrow money from my retirement plan--401(k) or IRA--to exercise my options? Answer: This is almost never a good idea. Most 401(k) plans permit loans in the case of financial hardship and few administrators would consider exercising stock options a hardship. There is a way to pull cash out of your IRA for a period of less than 60 days, but if you don't document it correctly or fail to repay the IRA before the 60 days are up, you will face some harsh tax penalties. Even if you did use cash from your IRA to exercise the option, you would have to sell most of the stock to repay the money before the 60-day time limit. Question: My option grant says they are "reload" options. What are they? Answer: Reload options are a special type of option that comes into play when you use company stock you own to exercise your options. The reload option grants another option for the same number of shares used to exercise and has an exercise price equal to the fair market value of the stock on that day. The option grant may specify that only the shares used for exercise be reloaded, while other plans may reload the shares used to cover the taxes. Question: My company granted vested options, but imposed a six-month blackout period. What's up with that? Answer: There can be several reasons for the blackout period, sometimes called a lockup or lockout period. Companies about to make an initial public offering or that have just completed one often prohibit employees from exercising options or selling stock. The concern is that investors might lose confidence in the young company if employees start dump- ing shares on the market. Tip