Net Unrealized Appreciation (NUA)

Many of our clients are faced with a decision regarding concentrated equity positions in their 401(k)’s or savings plans. One of the options available to employees with highly appreciated positions in company stock is to remove some or all of those shares from the plan using net unrealized appreciation (NUA).

Shares of company stock are removed from a retirement plan and the cost basis of those shares is taxed as ordinary income. The shares can then be held in an after-tax account until they are sold. At the time of sale, the difference between the stock’s cost basis and its current market value will be taxed at preferential capital gains tax rates.

Does a NUA distribution makes sense for you? Here are some questions to ask yourself:

1. Have you made after tax contributions to your company retirement plan?
2. Do you plan to maintain your position in company stock?
3. Will your tax rate decline significantly in retirement?