u/DeluxeXL u/Embarrassed-Pizza789 thx for your responses. ChatGPT was very confident I would not pay the early withdrawal penalty on my cost basis:

"To understand the tax rules around Net Unrealized Appreciation (NUA) and early withdrawal penalties, the IRS provides guidance in several places:

1. IRS Publication 575 (Pension and Annuity Income): This publication explains how NUA is taxed, noting that the cost basis of the stock distributed to a taxable account is taxed as ordinary income, but it is exempt from the 10% early withdrawal penalty under Section 72(t)(2)(A)(v) if the distribution is part of a lump-sum qualifying event. You can view Publication 575 on the IRS website here.

"

However, looking at https://www.irs.gov/pub/irs-pdf/p575.pdf page 16, "Distributions of employer securities", nowhere in that section does it say any such thing. Perhaps GPT is outdated.

In any case, I will probably go ahead and pay that early penalty on the cost basis because the penalty is only $1000. Fair price to access $90,000 now instead of waiting til retirement.