Selling $1.36 million in built-in profits in one year triggers the 20% federal LTCG rate, 3.8% NIIT and state taxes, representing a variance of more than $400,000 compared to smarter roads.
Spreading sales over four years of retirement keeps most profits at the 15% federal level, typically saving six figures in taxes compared to a single-year payoff.
The NUA election allows the $1.36 million appreciation of employer stock held by the 401(k) plan to be taxed at long-term capital gains rates rather than ordinary income rates, as long as the mechanics are properly executed.
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A 64-year-old software executive leaves the office on her last day with $1.6 million in shares of a single company. Your cost basis is $240,000, which means approximately $1.36 million is long-term built-in capital gains waiting to be activated. He has no W-2 income as of next January, a house paid off, and a 401(k) he hasn’t touched. The real question is how to resolve the situation without giving the IRS, her state, and Medicare a tax bill that could range over $400,000 depending on which path she chooses.
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This situation is common in the technology, financial and pharmaceutical sectors at the end of their career. Concentrated shares created through grants, options and an employee stock purchase plan may become the largest item on the balance sheet. Documents filed with the SEC show executives of Coca-cola (NYSE:KO), Seagate technology (NASDAQ:STX), and Republic Services (NYSE:RSG) unwinds positions through Rule 10b5-1 plans and option exercises. If done wrong, the tax burden can erase a decade of compounding.
The biggest financial strain is managing the braces. Federal long-term capital gains are taxed at 0%, 15%, or 20%, with the top rate applying once taxable income exceeds approximately the upper middle bracket. The 3.8% Net Investment Income Tax starts at $200,000 of modified adjusted gross income for a single filer and $250,000 for a joint filer. Those NIIT thresholds were established by law in 2013 and have never been indexed for inflation, so almost any major one-year sale crosses them. State taxes then accumulate and range from 0% in Florida or Texas to over 10% in California or New York.
For context on the reinvestment side, the 10-year Treasury bond is yielding around 4.5%, near the top end of its 12-month range, and the federal funds upper bound has remained at 3.75% since December. Reinvested income today earns a real return, making the after-tax dollar that survives the liquidation worth defending.
Path A: sell everything in one year
Selling the entire $1.36 million gain in 2026 puts it in the 20% federal LTCG bracket on most of the gain, adds the 3.8% NIIT on the portion above the threshold, and accumulates state taxes on top. In a middle-tax state, the combined impact is easily in the high 20% of profit range.
Route B: Spread sales over four years of retirement
Without wage income, your taxable income in 2027 starts near zero. By harvesting about a quarter of the position each year for four years, you can keep most of each year’s profit within the 15% federal LTCG range and stay below or just at the NIIT threshold. The 0% bracket may absorb a small amount before Social Security and 401(k) withdrawals begin. For most retirees in this profile, this is the default option. The arithmetic typically saves six figures compared to Route A, and the only real risk is that the stock will fall materially before it finishes selling.
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Path C: The NUA election if the shares are in the 401(k)
If part of the $1.6 million is held within your employer’s 401(k) plan, net unrealized appreciation is an underused measure in the code. Accepts a global distribution of shares in kind. The $240,000 basis is taxed today as ordinary income. The $1.36 million of appreciation is taxed at long-term capital gains rates only when you sell, even if you sell the next day. Anything you don’t sell during your lifetime passes to your heirs with a step-up in basis upon your death. NUA usually wins when the base is low relative to the position.
Route D: a charitable remainder trust
If you already plan to leave money to a charity, contributing the shares to a Charitable Remainder Trust allows the trust to sell the shares without immediate capital gains taxes, pay you a lifetime income stream (typically between 5% and 7% of the trust value annually), and direct the remainder to charity upon your death. You also get a partial income tax deduction in the year of the donation. The trade-off is irrevocability and a lower lifetime cash flow than a direct sale would produce. This path only makes sense if there is already a charitable intention.
What to do first
Two concrete next steps:
Find out where the stock really stands. The brokerage account, ESPP, RSU vesting account, and 401(k) stocks are taxed under different rules. NUA is only available for employer shares within the qualified plan, and the election must be made as part of a lump sum distribution in a single tax year. You miss the mechanics and the option disappears forever.
Model taxable income from 2027 to 2030 before selling a single share in 2026. The window between retirement and the start of Social Security and required minimum distributions (currently age 73) is the lowest bracket most retirees will ever see. Filling that window with gains taxed at 0% and 15% is where the $400,000 swing comes from.
The common mistake is to sell everything in the retirement year itself, when severance payments, deferred compensation, final RSU awards, and bonus payments often push ordinary income to a career high. Combining top ordinary income with a fully realized concentrated position is how a six-figure tax bill becomes a seven-figure one.
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