NUA: A Little-Known Tax Break

If your 401(k) has highly appreciated company owned stock, using a net unrealized appreciation (NUA) strategy may be able to save you money on your tax bill.

Assume you have $500,000 in your 401(k). Assume that $400,000 of it is in mutual funds and $100,000 represents your employer’s stock. Also assume that $20,000 of the stock represents the contribution portion and $80,000 represents the appreciation. Under this scenario, your NUA in the employer’s stock is $80,000.

Now assume you have separated from service and you want to rollover your entire 401(k) balance to an IRA. Before doing that, you may want to consider taking advantage of an NUA strategy. Why? Because you have highly appreciated company stock! Under an NUA strategy, you would pay ordinary income tax on the original $20,000 cost of your employer stock shares. However, you would only pay a long-term capital gains rate (15%) on the NUA.

Using the numbers above as an example, let’s say your income tax rate is 35%. Instead of owing 35%, or $35,000, on the total $100,000 of your company stock, the most you would owe is 35%, or $7,000, on the $20,000 cost basis plus 15%, or $12,000, on the $80,000 of NUA.

This would be a total tax bill of $19,000 ($7,000 + $12,000). This translates to a tax savings of $16,000 – without an NUA strategy you would be paying $35,000 instead of $19,000.
Keep in mind that an NUA strategy is not going to be appropriate for everyone. If you are considering an NUA strategy, be sure to first consult your personal CPA, EA or other tax professional to discuss potential advantages and disadvantages.

More Updates


For trusts that inherited an IRA in 2019, an important deadline is approaching. The due date to provide required trust documentation to the IRA custodian to ensure that the longest payout period possible is available for the inherited IRA is October 31, 2020. Generally, only individuals who are named on an IRA beneficiary form can

Read More »


The coronavirus-related distribution (CRD) rules for Roth conversions have a gaping hole. An “affected person” (as we have defined in previous blogs), is entitled under the CARES Act to withdraw up to $100,000 from their IRA or workplace retirement plan. A CRD avoids the 10% early distribution penalty for those under 59 1/2, can be

Read More »

Rolling Over an RMD

Like most people’s lives, the retirement world is upside down. This is made evident by a single statement: “Required minimum distributions (RMDs) can be rolled over.” Yes, that is the new normal—at least for this year. RMDs are considered the first money out of an IRA and workplace plan. Typically, these dollars are ineligible to

Read More »
Scroll to Top