Can I do a Net Unrealized Appreciation (NUA) Distribution?
NUA is a tax treatment available to employees who own employer stock within their 401(k) plan. Under NUA rules, when the stock is distributed from the plan, the employee pays ordinary income tax on the cost-basis of the stock, but any appreciation in value (the "unrealized appreciation") is taxed at the lower long-term capital gains rate.
To qualify for an NUA distribution, the following conditions must be met:
The stock must qualify: To qualify for NUA treatment, the stock must be employer-issued stock held in a qualified plan, such as a 401(k) plan, and must be distributed as a lump sum.
Triggering events must be satisfied: The distribution must occur after a "triggering event," such as reaching age 59.5, separation from service, disability, or death.
Timing considerations: The distribution must occur in the same tax year as the triggering event or the following tax year.
Tax impact of cost-basis and gains: The cost-basis of the stock will be subject to ordinary income tax, but the unrealized appreciation will be subject to long-term capital gains tax when the stock is sold.
Click here to read more
Robert J. Pyle, CFP®, CFA, AEP® founded Diversified Asset Management, Inc., in 1996 to provide personalized, comprehensive wealth management services to successful individuals, families, single women, and business owners. His specialty is addressing the complex financial needs of self-employed professionals, corporate executives, and small-business owners. Our disclosure can be found here. The views, opinion, information, and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting, or tax advice.