What is Net Unrealized Appreciation (NUA)? I have some company stock in a qualified plan that has not been distributed. What tax strategy should I look at? – Jerry


We’re going to assume you’ve reached age 59 and have retired. That being the case, essentially you have three choices when it comes to the company stock within your old employer’s retirement plan. First, you could take a cash distribution and pay ordinary income taxes on the full value. Unless you have an immediate requirement, this probably doesn’t make sense. The tax implications would seem to be prohibitive.

Second, you could rollover the entire value (in cash, not stock) to an IRA and invest in a portfolio of your choosing. This approach would not create any tax liability today, but future distributions would be subject to ordinary income taxes. You could synchronize distributions from the IRA to take advantage of the current tax brackets. For example, you could elect to take voluntary IRA distributions to the top of the 15 percent tax bracket. In this scenario, you delay the taxation of your retirement plan assets.

Finally, you could make a distribution of the company stock into an ordinary (non-retirement, non-IRA) brokerage account through Net Unrealized Appreciation . When the stock moves out of your retirement plan and into the brokerage account, you will be responsible for paying ordinary income tax only on the cost basis of the stock. However, the net unrealized appreciation, the difference between the value of the stock when it is distributed and the cost basis, is not taxed until you actually sell the stock. Further, at the time of the sale, the NUA is taxed at the long-term capital gains rate which is currently capped at 15 percent. Appreciation will be taxed based on how long you hold the stock outside of the employer plan. This strategy can be particularly attractive for stock that has a very low cost basis relative to the value.

Those are your options. Now it’s time to sit down with your tax advisor and figure out which makes the most sense for you.