NUA relates to distributions of appreciated employer securities from an eligible employer-based retirement plan. The net unrealized appreciation is excluded from the employee’s income at the time of distribution to the extent that the securities are attributable to employer and nondeductible employee contributions.

What is an Nua?

The net unrealized appreciation (NUA) is the difference in value between the average cost basis of shares of employer stock and the current market value of the shares.

Does Nua apply to company stock funds?

The NUA tax break strictly applies to shares in the company you work for. Other assets in the 401(k), such as mutual funds, do not receive it. And you should only consider taking advantage of the move if the stock has appreciated significantly from the time it was purchased by your plan.

Net unrealized appreciation (NUA) is the difference between the original cost basis and current market value of shares of employer stock. The IRS offers a provision that allows for a more favorable capital gains tax rate on the NUA of employer stock upon distribution, after certain qualifying events.

What are NUA rules?

What is the NUA rule? The federal tax laws contain a little-known rule that applies to certain distributions of company stock from the company’s qualified plan. Under this rule, only the cost basis of the shares is subject to tax (and potentially an early withdrawal penalty) at the time of the distribution.

How does a former employer qualify for a Nua?

To qualify for the NUA, all assets from all qualified plans of the former employer must be distributed, not just the ones containing shares of stock. The shares must be deposited in a taxable brokerage account, with the basis of the stock equal to what was paid for it, although the plan will determine both the tax basis and the resulting NUA.

What kind of tax do you pay on a Nua?

An NUA won’t make sense if you’re in a higher tax bracket and there’s less of a gain on the value of your employer stock. Let’s say that you’re in the 25% ordinary income tax bracket, which means that long-term capital gains are taxed at 15%.

What does Nua mean for a retirement plan?

NUA is a favorable tax treatment on employer securities (usually stock) for lump-sum distributions from a qualified retirement plan. More and more companies are offering employer stock as an investment option inside their qualified plans, allowing NUA to provide a potentially lower tax bill.

What are the rules for a Nua distribution?

The distribution must include all assets from all accounts sponsored by and held through the same employer All stock distributions must be taken as shares – they cannot have been converted to cash prior to distribution. The entire vested interest in the retirement plan must be distributed.