You’ve worked hard, contributed faithfully to your 401(k), and now retirement is on the horizon. Like many professionals, your plan may be to roll everything into a traditional IRA and let it ride. But if part of your 401(k) includes employer stock, that move could leave serious money on the table.
Enter: Net Unrealized Appreciation (NUA)—a powerful, often-overlooked tax strategy that can stretch your retirement dollars further by turning heavily taxed income into lower-taxed gains. For the right person, NUA can result in massive tax savings and increased long-term wealth.
What Is Net Unrealized Appreciation (NUA)?
Net Unrealized Appreciation (NUA) is the difference between what you paid for your employer’s stock in your 401(k) (the cost basis) and what that stock is worth today (its market value). This gap is critical for tax purposes.
Here’s why: when you move money from a 401(k) into an IRA, all withdrawals are taxed as ordinary income, potentially up to 37%. But if you separate out the appreciated stock and handle it through NUA, you only pay ordinary income tax on the original cost basis. The appreciation? That’s taxed later as long-term capital gains, typically at just 15% or 20%.
This approach can drastically cut your tax bill and leave you with more money in your pocket during retirement.
For another way employees can manage stock-related taxes smartly, read this breakdown of same-day sales of employee stock options.
How the NUA Strategy Works
Let’s walk through the steps:
1. Distribute the Stock Separately
Rather than rolling everything into an IRA, move the employer stock into a taxable brokerage account.
2. Pay Income Tax on the Cost Basis Only
You’ll pay ordinary income tax immediately—but only on what you originally paid for the stock.
If you’re concerned about the immediate tax hit, Installment Agreements might offer relief options.
3. Pay Capital Gains Tax When You Sell
The appreciation (the “unrealized” part) is taxed later as long-term capital gains when you sell the stock from the brokerage account.
Example
- Original cost of stock: $50,000
- Current value: $200,000
- You pay income tax on $50,000
- You pay capital gains tax on $150,000 only when you sell
With standard IRA withdrawals, that full $200,000 would be taxed as income. With NUA, you’re converting the bulk of it into a lower-taxed gain.
Who Should Consider Using Net Unrealized Appreciation?
While not everyone qualifies for or benefits from NUA, here’s who should take a closer look:
- You’re 59½ or older and approaching retirement
- You have a large amount of employer stock in your 401(k)
- That stock has significantly appreciated over time
- You expect to be in a lower tax bracket when you sell
- You want to optimize tax savings and preserve wealth
If this describes you, Net Unrealized Appreciation could be one of the most powerful financial moves you make. It may even complement other IRS solutions like the Offer In Compromise if you’re managing other tax issues.
For insights into advanced tax strategies used by high-net-worth individuals, see How Nvidia CEO Jensen Huang’s Estate Planning Strategies Could Save Billions in Taxes.
Why NUA Is Not a DIY Project
NUA might seem simple on the surface, but the IRS has strict rules, and one wrong move, like triggering an IRS audit, can kill the benefits. Here’s what could go wrong:
- The entire distribution must happen within one calendar year
- The stock must be transferred directly—not sold or cashed out first
- Improper rollover timing can disqualify the strategy entirely
A single misstep can trigger taxes or penalties that erase your gains. This is not something to try without guidance.
How IRSProb.com Helps You Execute NUA Correctly
At IRSProb.com, we specialize in retirement tax strategies like Net Unrealized Appreciation. Here’s how we help:
- Analyze your 401(k) and determine if NUA is a good fit
- Calculate your cost basis and projected tax savings
- Guide you through the correct sequence of steps
- Prevent mistakes that could cost you thousands
- Coordinate with your financial advisor for a full tax-smart retirement plan
We make the NUA process simple, secure, and beneficial—so you walk into retirement knowing you’ve kept more of what you earned.
Final Thoughts: Let NUA Work for You
Net Unrealized Appreciation isn’t just a technical tax term—it’s a hidden wealth-building strategy for those with the right 401(k) setup. If your employer stock has grown in value, using the NUA strategy could mean paying less tax and keeping more savings for your future.
