medium · Certified Financial Planner Risk Management
Sarah Voss holds 401(k) employer stock worth 500,000 with a cost basis of 75,000. She is age 60 and just separated from service. She is considering an NUA distribution.
What is the tax treatment of the 425,000 appreciation upon distribution?
- It is subject to a 10% penalty because Sarah is not yet 65.
- It is deferred and taxed as Long-Term Capital Gain when the stock is sold.
- It receives a basis step-up to Fair Market Value at the time of distribution.
- It is taxed as ordinary income in the year of distribution.
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