What is NUA?: Net Unrealized Appreciation Explained


If your 401k or holds company stock, you may be able to take advantage of little known tax-saving opportunity called net unrealized appreciation or (NUA)[1]. The strategy begins with you rolling all of your 401k monies into a traditional IRA account and simultaneously transferring your employer stock into a taxable brokerage account.

You will be responsible for paying ordinary income tax on the cost basis of the employer stock; however, instead of selling the appreciated value in the future within your IRA, you will be able to sell the shares and pay only a long-term capital gains rate versus a higher ordinary income rate as a future distribution from your IRA. Also, your RMD calculation will be reduced by the value of the shares you bifurcated from your original 401k account thereby saving you money.

[1] Topic No. 412 Lump-Sum Distributions, (n.d.), retrieved from https://www.irs.gov/taxtopics/tc412

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