I have a client that is considering utilizing NUA rules to move some of his highly appreciated company stock from his qualified plan to an after tax account. For the purposes of the following questions here are some assumptions:

Basis in company stock: $500,000
Appreciation in company stock: $500,000
Total company stock: $1,000,000

Total other 401k assets: $1,000,000

Total qualified plan assets: $2,000,000

Here are 3 things that I would like clarified:

1. If we proceed with with the NUA and transfer the full $1,000,000 from his qualified plan to an after-tax account my understanding is that if the cost of the shares decrease, he will pay less capital gains tax until the NUA amount is completely liquidated. Once he gets to the basis amount if there is a decrease in value would then result in a capital loss if the shares were sold. Are my assumptions correct and is there any other way to claim a capital loss on the assets transferred to a taxable account?

2. I have read that there is not a step up in basis on any NUA. So if my client were to pass away a day after completing the NUA transaction and they had $500,000 in basis and $500,000 in NUA, the $500,000 in NUA would still be taxable at capital gains rates to his heirs. Only if there is an increase in value from when the NUA transaction takes place do they get a step up in basis on any appreciation, but they will always pay capital gains on $500,000 as long as there is a gain of at least that much. Is this correct?

3. Forbes detailed an example of something called a Basis Twist. The concept is that you wouldn’t be required to pay the tax on the cost basis during an NUA transaction. The way this would work is that in this scenario, you would roll the $500,000 basis to an IRA and the $500,000 NUA would move to an after-tax account. Is this possible? If this is possible, why wouldn’t everyone do this? Here is a link to the article: http://www.forbes.com/sites/advisor/2012/01/30/one-thing-you-dont-know-about-401k-rollovers-nua/

Thanks in advance for your help!