What to Do with Your Stock After an NUA Distribution

You've executed the NUA election — paid ordinary income tax on the cost basis, and now own a block of employer stock in your taxable brokerage account with a built-in long-term capital gain. Here are your five core strategies for what comes next.

Your starting point

After an NUA distribution, the employer stock in your taxable account carries two layers of gain:

• NUA layer — the appreciation from the plan's purchase price to the distribution date. This is automatically long-term capital gain (LTCG) whenever you sell, regardless of how long you hold after distribution. No additional holding period required.¹
• Post-distribution appreciation — gains that accumulate from the distribution date onward. Held under 1 year: short-term. Held 1 year or more: long-term. This layer does receive a step-up in basis at your death.

Federal LTCG rates in 2026: 0% (income up to $49,350 single / $98,900 MFJ), 15% (income up to $533,400 single / $566,700 MFJ), 20% above those thresholds.² An additional 3.8% Net Investment Income Tax (NIIT) applies if your MAGI exceeds $200,000 (single) or $250,000 (MFJ) — those thresholds are not inflation-adjusted.²

Your decision is how to exit or manage the position without giving back the tax savings you just created.

Strategy 1 — Sell immediately and reinvest diversified

The simplest path: sell all or most of the stock, pay LTCG, and reinvest in a diversified portfolio. Works best when:

• Your income in the distribution year is already elevated (retirement income, other asset sales, Roth conversions) — deferring the gain doesn't meaningfully reduce your bracket.
• You're bearish on the company's near-term prospects or simply don't want single-stock risk.
• You want simplicity over optimization.

Example: $900K NUA gain, 20% LTCG + 3.8% NIIT = ~$214K in tax. After-tax $686K is fully diversified with no further company-specific risk. Compare this to the ordinary-income tax you'd have owed on the same $900K inside an IRA — at 37%, that's $333K. NUA still saved you $119K even with the worst-case LTCG rate.

Strategy 2 — Tranche selling across multiple years

Instead of realizing all gains in one year, spread sales over several years to stay in a lower bracket. If your income drops after retiring (before Social Security, before RMDs), you may qualify for the 0% or 15% rate on substantial amounts each year.

Example: $900K NUA gain spread over 6 years = $150K/year in realized gains. If your MFJ taxable income runs $130K/year in early retirement, you remain entirely in the 15% bracket. Compare that to a one-year exit at 20% + NIIT: the difference is roughly $50,000 in total federal tax.

Key coordination points: Roth conversions, RMDs, and Social Security income all affect which LTCG bracket you hit in a given year. Selling too much in an RMD-heavy year can push you into the 20% tier and trigger IRMAA surcharges on Medicare premiums. See our NUA + Roth conversion sequencing guide for how to fit all the pieces together.

Strategy 3 — Donate to charity (direct, DAF, or CRT)

If charitable giving is already part of your plan, appreciated employer stock is the most tax-efficient asset to donate:

• Direct donation: Donate shares to a qualified charity. You receive a deduction for the full fair-market value (up to 30% of AGI per year; excess carries forward 5 years³), and you pay zero capital gains tax on any appreciation — including the NUA layer.
• Donor-Advised Fund (DAF): Contribute appreciated shares to a DAF, take the immediate FMV deduction, recommend grants to any qualified charity over time. Useful if you want flexibility on timing or which charities receive funds.
• Charitable Remainder Trust (CRT): Transfer stock to a CRT; the CRT sells and reinvests without triggering immediate capital gains to you. The trust pays you (or you and a spouse) an income stream for life or a fixed term. You receive a partial charitable deduction upfront. Charity receives the remainder. Useful when the NUA position is large and you want diversification, income, and a charitable legacy simultaneously.

A note on IRD: the NUA layer carries income-in-respect-of-decedent (IRD) character. A charity is tax-exempt, so it absorbs the IRD without tax — making charitable strategies especially attractive for the NUA portion of the gain compared to passing it to heirs. See our NUA + estate planning guide for the full comparison.

Strategy 4 — Gift appreciated shares to family

The 2026 annual gift exclusion is $19,000 per recipient ($38,000 per couple using gift-splitting).² Gifting appreciated shares moves the future capital gains liability to a recipient who may be in a lower bracket.

• The recipient takes your cost basis (carryover basis). When they sell, they owe LTCG on the same NUA gain you would have owed.
• If your adult children are in the 0% or 15% LTCG bracket, the family's total tax on the position drops significantly.
• Caution: the kiddie tax (IRC § 1(g)) applies to unearned income for children under 19 (or full-time students under 24) — gains are taxed at the parent's rate, so gifting to young children doesn't generate a bracket benefit.

IRD consideration: the NUA layer does not receive a step-up at death whether the shares pass by gift or inheritance. Heirs and gift recipients alike owe LTCG on the NUA portion when they sell. The only exit that eliminates the NUA IRD entirely is donation to a charity.

Strategy 5 — Hold for estate step-up (on post-distribution gain)

If you plan to hold the stock long-term and pass it to heirs, here is the estate math:

• NUA layer = IRD. No step-up. Heirs inherit your cost basis for this portion and owe LTCG when they sell.
• Post-distribution appreciation = steps up to date-of-death FMV. Heirs can sell immediately and pay zero tax on this layer.
• With the federal estate exemption at $15,000,000 per person in 2026 (OBBBA, permanent), most NUA investors won't owe estate tax. The IRD on the NUA layer converts what would have been ordinary income inside an IRA to LTCG for heirs — a permanent conversion that remains valuable regardless of future ordinary income rate changes.

This strategy works best when the stock is stable, you don't need the proceeds, and your heirs can absorb the eventual LTCG on the NUA portion. If the stock's post-distribution appreciation has grown substantially, the stepped-up basis on that layer more than compensates for the IRD on the original NUA layer.

Choosing your path — quick decision guide

In practice, most advisors recommend a combination: donate a portion charitably each year, sell a tranche to stay in the 15% bracket, and hold the rest for estate planning. The right split depends on your income trajectory, estate size, charitable intentions, and views on the stock.

Why this phase requires specialist advice

Post-NUA diversification intersects at least four moving pieces: LTCG brackets, RMD timing, Social Security income, and estate planning — all of which interact. A misstep — selling the wrong amount in the wrong year, ignoring IRMAA triggers, or missing the IRD consideration on a gift — can easily cost $50,000–$200,000 in unnecessary tax.

Fee-only advisors who specialize in NUA run the full multi-year projection: which year to sell, how much, how to coordinate with other income sources, whether a CRT makes sense for your position size, and how to thread estate planning through the remaining NUA stock.

Sources

1. IRS Publication 575 — Pension and Annuity Income. NUA tax treatment at distribution (automatic LTCG on NUA layer), IRD rules for NUA stock held until death, and step-up mechanics on post-distribution appreciation. Statutory basis: IRC § 402(e)(4).
2. IRS — 2026 Tax Inflation Adjustments (Rev. Proc. 2025-32). 2026 LTCG rate thresholds: 0% up to $49,350 single / $98,900 MFJ; 20% above $533,400 single / $566,700 MFJ. Annual gift exclusion $19,000 per recipient. NIIT thresholds ($200K/$250K) are not indexed for inflation per IRC § 1411.
3. IRS Publication 526 — Charitable Contributions. FMV deduction rules for donations of appreciated capital-gain property; 30%-of-AGI limitation and 5-year carryforward for capital gain property donations.
4. IRC § 402(e)(4) — Net Unrealized Appreciation; Lump-Sum Distribution definition. Statutory basis for NUA LTCG treatment and carryover basis rules on gifted NUA stock.

Tax values verified against 2026 sources: IRS Rev. Proc. 2025-32 (LTCG thresholds, gift exclusion), IRS Publication 575 (NUA IRD and step-up rules). Values current as of April 2026.