Weekend Reading: Net Unrealized Appreciation (NUA) Tax Strategies for Modestly Appreciated Stock

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Weekend Reading

Staying at the forefront of your retirement tax plan means becoming educated about tax strategies available at your fingertips. One of those strategies involves a Net Unrealized Appreciation (NUA). To simplify, an NUA is described here as “…the appreciation of an employer’s stock that occurs while those shares are held inside of a retirement plan that is sponsored by that employer.”


The tax tradeoff: When it comes to retirement accounts, nearly all distributions are considered ordinary income, thus subject to ordinary income tax rates. However, a work-around here applies to distributions of company stock where an account owner is/was employed, and classified as NUA. In this instance, there is a tax maximization opportunity to trade back ordinary income tax rates for long-term capital gains on a portion of your retirement savings when sold in a taxable account.

While the NUA does reap benefits, it is crucial to identify the trade-off. For one, the portion of the shares distributed are subject to ordinary income taxes immediately. In addition, issuing such a transaction depletes the assets from their tax-deferred “wrapper” provided in a retirement account. That being said, the strategy can still be successful in instances, and to carry it through, three rules must be followed:

📌Transactions can only be made after a “Triggering Event”

📌The retirement plan must be emptied within one calendar year

📌The shares of stock for which you wish to make use of the NUA tax treatment must be moved directly to a taxable account

Proceed with caution: For individuals with moderately appreciated securities, any sort of appreciated employer stock in the retirement plan can be utilized for an NUA transaction in supplementing short-term, immediate income. As a word of caution, though, this move only makes sense if it doesn’t push you into a higher tax bracket, and that will ultimately depend on your financial picture as a whole.

Bottom line: If you have employer stock inside of your employer-based retirement plan, take heed. Ensure you are maximizing the tax code before executing a rollover, regardless of your cost basis.