Weekend Reading: Use Net Unrealized Appreciation to Save on Taxes in Retirement

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
Weekend reading net unrealized appreciation tax savings Weekend reading net unrealized appreciation tax savings
Weekend Reading

You want to minimize the money you owe Uncle Sam, and Net Unrealized Appreciation (NUA) is just one of many strategies that can help you do so.


How it works: From a high level, NUA presents a tax-saving opportunity if you have highly appreciated employer stock in your retirement plan. It’s the difference between the original cost basis and the current market value of the stock. As a result, this appreciation can receive special tax treatment, allowing you to pay long-term capital gains taxes instead of ordinary income rates.

Much like with any investment move, there are factors to consider before leveraging NUA. For example, the lack of diversification in holding a substantial position in employer stock can expose you to excess volatility during times of poor stock performance. Further, to utilize NUA successfully, you must meet specific requirements to receive long-term capital gains tax treatment on qualifying shares of company stock. Those include:

📌 You need to experience a “triggering event” (such as death, disability, separation from service or reaching age 59.5).

📌 Shares of employer stock must be distributed in-kind to a non-retirement brokerage account.

📌 Your entire 401(k) must be distributed as a lump sum, with company shares moved to a non-retirement account and the remaining 401(k) dollars into an IRA.

If you own any employer stock whatsoever, you need to work with an experienced advisor as early as possible to implement your exit strategy and maximize your after-tax returns.