A rigorous treatment of the sea ice medium has been incorporated in the advanced Coupled Ocean-Atmosphere Radiative Transfer (COART) model. The inherent optical properties (IOPs) of brine pockets and air bubbles over the 0.25-4.0 µm spectral region are parameterized as a function of the sea ice physical properties (temperature, salinity and density). We then test the performance of the upgraded COART model using three physically-based modeling approaches to simulate the spectral albedo and transmittance of sea ice, and compare them with measurements collected during the Impacts of Climate on the Ecosystems and Chemistry of the Arctic Pacific Environment (ICESCAPE) and the Surface Heat Budget of the Arctic Ocean (SHEBA) field campaigns. The observations are adequately simulated when at least three layers are used to represent bare ice, including a thin surface scattering layer (SSL), and two layers to represent ponded ice. Treating the SSL as a low-density ice layer yields better model-observation agreement than treating it as a snow-like layer. Sensitivity results indicate that air volume (which determines the ice density) has the largest impact on the simulated fluxes. The vertical profile of density drives the optical properties but available measurements are scarce. The approach where the scattering coefficient for the bubbles is inferred in lieu of density leads to essentially equivalent modeling results. For ponded ice, the albedo and transmittance in the visible are mainly determined by the optical properties of the ice underlying the water layer. Possible contamination from light-absorbing impurities, such as black carbon or ice algae, is also implemented in the model and is able to effectively reduce the albedo and transmittance in the visible spectrum to further improve the model-observation agreement.