Net Unrealized Appreciation (NUA) — Turn Part of a 401(k) Stock Distribution Into Capital Gains
What Is It?
The NUA strategy can let part of the gain on employer stock distributed from a qualified plan be taxed later at capital gains rates instead of ordinary income rates.
What Most People Don’t Know
- This is one of the most technical retirement-tax strategies, and getting the distribution sequence wrong can ruin it.
- The stock must come from employer securities in a qualified plan.
- The basis and the appreciation are taxed differently.
Frequently Asked Questions
Why do people use NUA?
A: Because the employer stock’s appreciation can potentially be taxed later as capital gain instead of all being taxed as ordinary income at rollover or withdrawal.
Is this appropriate for everyone with company stock in a 401(k)?
A: No. The basis, tax brackets, and distribution facts matter a lot, and mistakes are expensive.