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If your heirs sell the stock immediately after your death, regardless of how much the stock has appreciated, your heirs will still pay capital gains tax on the . If the stock is sold at the estate tax value, the taxable gain for your heirs will be the NUA, because the NUA does NOT receive a step-up in basis.However, any further appreciation from the date the stock was distributed will receive a step-up in basis. Assume that instead of selling right after death when the stock was still worth 0, your heirs waited for several years and sold when the value had increased to 0. The selling price was 0 and the cost was the same , netting a profit of 0.Also, any appreciation from the date of death does not receive a step-up in basis.This can get complicated, but your beneficiaries must know how to figure gains and losses when they inherit NUA stock.Therefore, to compute the taxable gain for your heirs, the cost will be your original cost in the plan of plus the allowable step-up of , which equals .The trick to figuring out the taxable gain or loss for your beneficiaries on the sale of NUA stock is to know that the NUA does not receive a step-up in basis, but any appreciation from distribution date to date of death does receive a step-up.You've likely heard the complaint: Retirement plan fees are too high and are cutting into your long-term investment returns.Even if you haven't heard it directly from Jack Bogle—and didn't see the "Frontline" examination in which the Vanguard Group founder was featured lambasting the 401(k) industry for fee-gouging—you've probably been convinced somewhere along the way that 401(k) fees are excessive.
Now, I'd like to go a step further and talk about what happens when you inherit stock that's been in a 401(k).
This special treatment is known in tax talk as a "Step-up" in basis.
The stepped-up value is the fair market value, as opposed to the original cost of the asset.
Many workers invest in company stock in their 401(k)s or other company retirement plans.
At retirement, this company stock enjoys a special tax break known in tax parlance as Net Unrealized Appreciation, or NUA.