NUA (Net Unrealized Appreciation) Calculator

Frequently Asked Questions

What is NUA and how is it taxed?

NUA is the increase in value of employer stock from what the plan paid for it (cost basis) to its value when distributed. The cost basis is taxed as ordinary income at distribution; the NUA is taxed at long-term capital gains rates when you sell - typically 0%, 15%, or 20% depending on your income.

Does NUA apply to any employer stock, or only company stock?

NUA applies only to employer securities (stock of the company you work for) held inside a qualified plan. It does not apply to mutual funds, ETFs, or stock of other companies held in the plan.

Do I have to sell the stock immediately after distribution?

No. You can hold the distributed shares in your taxable brokerage account as long as you like. The NUA portion is taxed at LTCG rates whenever you sell. Any appreciation after the distribution date is taxed as either short-term or long-term gains depending on how long you hold the shares after distribution.

Can I roll part of my 401(k) to an IRA and use NUA for the employer stock?

Yes. In a lump-sum distribution year, you can take the employer stock in-kind to a taxable account (triggering NUA treatment) and roll all other plan assets (cash, other investments) to an IRA. This is a common approach to optimize overall taxes.

Provided by AllCalculators.io
Free online calculators for everyday. No registration required.

Estimates for informational purposes only.

Important Disclaimer: Estimates for informational purposes only.

This calculator provides estimates for informational purposes only. Results are based on assumptions and may not reflect actual outcomes. Consult qualified professionals in relevant fields before making important decisions based on these results.

JavaScript is required to use the interactive calculator above. The questions and answers below remain readable without JavaScript.

How This Calculator Works

NUA (Net Unrealized Appreciation) is a special tax treatment available when you take a lump-sum distribution of employer stock from a qualified plan (401(k), profit-sharing, ESOP). Instead of rolling the stock to an IRA - where all future withdrawals are ordinary income - you distribute it to a taxable brokerage account.

Under NUA rules: you pay ordinary income tax on the cost basis (what the plan originally paid for the shares), and the appreciation above that basis (the NUA) is taxed at long-term capital gains rates when you eventually sell the shares. This calculator compares the total tax cost of the NUA strategy against a standard IRA rollover followed by a distribution, helping you decide which path leaves more after-tax money.

When NUA Makes Sense

NUA is most advantageous when: the cost basis is low relative to current value (the NUA is large), your ordinary income rate significantly exceeds your long-term capital gains rate, and you plan to sell the shares soon after distribution.

The larger the NUA relative to the cost basis, the bigger the potential tax saving. An employee who accumulated stock at $20/share over 20 years and now holds stock worth $100/share has $80/share of NUA. Taxing that $80 at the 15% LTCG rate instead of 24-37% ordinary income rates saves $7-$18 per share. On 10,000 shares, that is $70,000-$180,000 in tax savings.

NUA is less attractive if the cost basis is already high relative to current value, or if you plan to hold the shares a long time after distribution (in which case a Roth conversion or rollover may be more efficient over decades).

Lump-Sum Distribution Requirements

NUA treatment requires a qualifying lump-sum distribution - you must distribute the entire plan balance (not just the employer stock) within a single tax year, triggered by one of these events:

Reaching age 59½

Separation from service (quitting, firing, or layoff)

Death (for beneficiaries)

Disability (if self-employed)

Partial distributions do not qualify. The entire plan must be emptied in the distribution year. Planning the timing carefully is important: distributing in a year with lower ordinary income reduces the tax on the cost basis, and qualifying for the 0% or 15% LTCG rate at the time of sale maximizes the NUA benefit.

NUA vs. IRA Rollover Comparison

When comparing NUA to a direct rollover, the relevant figures are:

NUA path: Ordinary income tax on the cost basis today, plus LTCG tax on NUA when sold, plus ordinary income tax on non-stock assets if rolled to IRA and withdrawn later.

Rollover path: No immediate tax; all future withdrawals (including all the appreciation) are ordinary income. The benefit: the money that would have gone to taxes in the NUA path stays invested and compound returns may offset the tax rate advantage.

The break-even holding period is a key variable. If you sell the NUA shares quickly, the LTCG advantage is immediate. If you hold for years, the compounding on the deferred rollover gains ground. A detailed comparison across both paths, using your specific tax rates and time horizon, is the right way to decide.

Tax laws change frequently. Verify current limits at IRS.gov and consult a qualified financial advisor before making retirement decisions.

NUA (Net Unrealized Appreciation) Calculator

Frequently Asked Questions

Related Retirement Calculators