Net Unrealized Appreciation (NUA) 401k Rules

If you own employer stock in your 401(k) plan and if that stock has gone up when you retire you should be aware of Net Unrealized Appreciation (NUA).

  • NUA allows people to take a withdrawal from their stock holdings as a capital gain.
  • For example, say you own employer stock for which you paid $50,000 that is worth $250,000.
  • If you use NUA, you pay income taxes on the $50,000, but capital gains taxes on the $200,000.
  • Which are 15% to 20% below income tax rates for most people.
  • The $200,000 is your NUA.
  • NUA will fluctuate as the stock moves up and down.

NUA is an important retirement planning strategy. It can cut taxes, but it may concentrate risk during retirement when diversification is needed.

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