Concentrated Stock Positions: Managing Taxes When Your Wealth Is Tied to One Company

Long, successful careers often leave the same mark on a balance sheet: a large position in one company’s stock, built through decades of 401(k) contributions, stock grants, and shares never sold because the company kept performing. For many Chevron employees and retirees, and for long-tenured employees of other public companies, that stock may now be the largest asset they own.

That success raises two questions. How much of your financial future should depend on one company? And what will it cost, in taxes, to change that? The answers affect each other.

When One Stock Represents a Significant Portion of Your Wealth

Owning a strong company can build real wealth, but a concentrated position ties your portfolio to one business and one industry, often the same forces that drive your salary, bonus, and pension. A sharp decline can disrupt retirement timing, income, and estate plans at once.

Diversifying reduces that risk, but selling highly appreciated stock can produce a large tax bill. The goal is to reduce concentration at a sensible pace while managing that cost. Where the stock is held, whether in a retirement plan, a taxable brokerage account, or an equity compensation program, determines which tools are available.

Understanding Net Unrealized Appreciation (NUA)

Retirement plan distributions are normally taxed as ordinary income, but Internal Revenue Code Section 402(e)(4) provides an exception for employer stock held in a qualified plan such as a 401(k).

Each share has a cost basis, generally what the plan paid for it, and a current market value. The difference is the net unrealized appreciation. If the shares are distributed in kind (as shares rather than cash) as part of a qualifying lump sum distribution, only the cost basis is taxed as ordinary income in the year of distribution. The NUA is taxed when the shares are sold, as long term capital gain regardless of how long you held them after distribution, and it is excluded from the 3.8% net investment income tax.

The requirements are strict. A lump sum distribution generally means receiving your entire balance from all of the employer’s plans of the same type within one tax year, after a triggering event. For employees, those events are separation from service, reaching age 59½, or death. A triggering event alone is not enough. A partial distribution or required minimum distribution taken in an earlier year after the triggering event can prevent a later distribution from qualifying until a new triggering event occurs. Whether a plan permits in-kind distributions depends on its own terms.

Rolling the shares into an IRA instead defers all tax but permanently gives up NUA treatment; every dollar later withdrawn is ordinary income. If you are younger than 59½, the 10% additional tax may apply to the taxable cost basis, though not to the NUA. One exception covers employees who leave their job in or after the year they turn 55, but it applies only to distributions from the employer plan.

NUA is not automatically better. It may be less attractive when the cost basis is high relative to market value, when the upfront income would fall in a high bracket, or when continued IRA deferral is worth more. The NUA portion also does not receive a stepped-up basis at death. Because these choices generally cannot be undone, the analysis should happen before anything leaves the plan.

Hypothetical Example

This simplified illustration does not reflect any actual plan or person. A 62-year-old retiree’s plan holds employer stock with a cost basis of $100,000 and a market value of $600,000. After retiring, she takes a qualifying lump sum distribution: the stock moves in kind to a taxable brokerage account, and her other plan assets are rolled directly to an IRA.

She reports $100,000 of ordinary income for that year. The $500,000 of NUA is not taxed yet. Eight months later, she sells the shares for $650,000. The first $500,000 of gain is long term capital gain because it is NUA. The additional $50,000 of growth after distribution is short term gain, taxed at ordinary rates, because she held the shares one year or less; it may also be subject to the 3.8% net investment income tax. Had she rolled the stock to an IRA instead, she would owe nothing today, but all future withdrawals would be ordinary income.

Tax-Efficient Diversification Strategies

Stock in a taxable account, including NUA shares after distribution, follows the regular capital gains rules: 0%, 15%, or 20% for shares held more than one year. For 2026, the 0% rate applies to taxable income up to $98,900 for married couples filing jointly ($49,450 for single filers), and the 20% rate begins above $613,700 ($545,500 single). Short term gains are taxed at ordinary rates of up to 37%. The 3.8% net investment income tax may also apply once modified adjusted gross income exceeds $250,000 for joint filers or $200,000 for single filers, thresholds that are not indexed for inflation.

Spreading sales over several years can keep more gain in lower brackets, and the years between retirement and required minimum distributions are often especially valuable. Sales should be coordinated with Roth conversions, deferred compensation, and other income competing for the same bracket space.

Losses elsewhere in the portfolio can offset gains, and up to $3,000 of net capital loss can offset ordinary income each year, with the rest carried forward, subject to the wash sale rule. Giving long-held appreciated shares to a qualified charity or donor-advised fund can generally provide a deduction for fair market value without capital gains tax on the appreciation, subject to a 30% of AGI limit for public charities.

None of these techniques should override sound risk management. Staying overexposed to save tax can cost far more if the shares fall.

Stock Compensation Follows Different Rules

Equity compensation is not eligible for NUA treatment. Restricted stock units are generally taxed as wages at vesting, and nonqualified stock options create ordinary income at exercise on the difference between market value and exercise price. Incentive stock options generally avoid regular tax at exercise, but that difference counts toward the alternative minimum tax (AMT), and the shares must be held more than two years from grant and one year from exercise for full capital gain treatment. Employee stock purchase plans have similar holding periods.

For 2026, the AMT exemption begins phasing out at $500,000 of income for single filers and $1,000,000 for joint filers, twice as fast as in recent years. Coordinating vesting, exercise, and sales with plan distributions can keep several taxable events from landing in one year.

Why Coordinated Tax and Investment Planning Matters

Concentrated stock decisions rarely belong to one professional. The plan administrator controls distribution options and cost basis records, a tax professional evaluates brackets and reporting, and a financial advisor weighs diversification and liquidity.

A thorough review considers retirement timing, plan distribution options, cost basis and historical appreciation, current and projected tax brackets, cash needs, diversification goals, and estate planning. Some decisions, such as rolling employer stock to an IRA or taking a partial distribution, may be difficult or impossible to reverse.

If a meaningful share of your wealth is tied to one company, we encourage you to talk with your Insight Wealth Strategies advisor before requesting a plan distribution, rolling over plan assets, or selling a large position. Our tax and investment professionals work together to model your options and help you balance tax efficiency with prudent risk management.

Insight Wealth Strategies, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Insight Wealth Strategies, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Insight Wealth Strategies, LLC unless a client service agreement is in place.

Insight Wealth Strategies, LLC (IWS) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.