I want to retire soon and own a single stock is worth millions – should I cash it all out or hold on for my kids’ step-up basis?

Buying stocks is one of the best ways to build long-term wealth. You don’t have to manage the asset like you would with real estate, and it can appreciate significantly in the long run.

One Redditor experienced a lot of success with stock investing and is currently sitting on a $3.7 million long-term capital gain. However, there is one small problem. Those long-term capital gains are from a single stock. While the Redditor has other assets, there is a heavy concentration into a single position. 

It’s not an exaggeration to say that the Redditor’s net worth depends solely on that stock’s performance. Not everyone can sleep at night knowing that one stock controls their financial future. That’s why the Redditor turned to the Fat FIRE Reddit community for some advice. Here’s what the comments suggested.

Move to a State with No Income Tax

One of the commenters shared how he moved to Florida a few years before selling his business. This decision allowed him to avoid paying state income taxes. He spoke with a lawyer and strategized how to make this move to ensure the other state wouldn’t request any taxes from the deal.

The commenter didn’t sell his home. Instead, he used it as his secondary home and turned the Florida property into his primary residence. If the Redditor does something similar with the long-term capital gains, they can save a lot of money on state income taxes.

It’s also worth noting that the Redditor wants to retire in a few years and plans to live on $250k per year. The Redditor has a $9.25 million net worth, so retirement is very feasible. However, since retirement is on the horizon, the Redditor will have more flexibility with moving to Florida.

Start with the Shares that Produce the Lowest Capital Gains

The Redditor mentioned selling shares based on their cost bases. The individual wants to focus on selling shares that will produce the lowest capital gains. This strategy will reduce the tax bill, but it can also result in plenty of leftover shares for the children. The Redditor has a 22-year-old and an 18-year-old. Giving them the shares with the highest capital gains as an inheritance resets those gains through step-up basis.

This strategy can also help as the Redditor transitions from their current state to a state that doesn’t have any income taxes. Selling the shares with the lowest capital gains minimizes the tax burden while making a move. If the Redditor converts their secondary home into a rental property, they will also be able to reduce their taxes even more with depreciation.

Know How Many Shares You Want to Sell

The Redditor responded to several comments, but there is a key reply that should be at the forefront of the conversation. One commenter asked the Redditor for their goal, and the Redditor simply mentioned that they want to stop thinking about the large stock position.

The only way you can do that is by diversifying into other assets. That means selling a bunch of shares, but how many shares should the Redditor sell? The Redditor has to think about this question. Some people in the Redditor’s position may want to cut the position in half over time, while others may want a more modest 20% reduction in the total number of shares.

Knowing this number can help the Redditor plan out how many shares they have to sell each year to reach their goal over time. The Redditor mentioned that they would still have $5.5 million if it drops by 33%, so there is time for the Redditor to gradually diversify and minimize long-term capital gains taxes. 

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