NUA - Net Unrealized Appreciation
Do you own company stock in your 401k? Would you like to cut your taxes in half when you retire? NUA Net Unrealized Appreciation is the answer.
NUA - Net Unrealized Appreciation - A secret hidden in the RegulationsMany financial advisers are aware of it, but can't advise on the tax consequences. Most tax preparers have never heard of it because the IRS has published very little in the way of information regarding it. It took numerous hours researching the Internal Revenue Code and Treasury Regulations related to retirement plans to understand the transaction.
How NUA - Net Unrealized Appreciation WorksHow it works is quite simple: you make a lump-sum distribution of your 401k. This is a rollover. In that process, you distribute your company stock (or employer stock such as HEICO, FPL, NextEra Energy, Chevron, to name a few) to a brokerage account. You will owe tax on the basis of the stock. This is what you purchased it for many years ago in your ESOP or LESOP retirement account. The appreciation of the stock all those years will be subject to long term capital gains. You would want to take advantage of this if your stock has gone up in value since you acquired it. Furthermore, if you did not do this transaction, you would pay ordinary income rates as high as 39.6%. So what would you rather pay in taxes, 0%, 15%, or 20%, in capital gains tax rates, or 39.6%?