Net Unrealized Appreciation | Episode 2

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So, in today’s episode, we want to continue with our conversation around net unrealized appreciation (NUA). Our last episode provided a brief overview of NUA for

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those whose retirement plan includes company stock. This week’s episode will highlight some general rules surrounding

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NUAs. While pre-tax contributions to a 401(k) or other retirement plan reduce our taxable income in the year of

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contribution, once we retire and begin distributions, these pre-tax amounts and subsequent gains will be taxed at ordinary income

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tax rates that are in effect during each distribution year. An exception to this ordinary income taxation rule is on

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appreciated employer securities that are distributed from the employee retirement plan. Distributions only qualify for NUA

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treatment if completed after a triggering event. So again, these triggering events are separation from

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service, reaching age 59 and a half, death, or disability. So, what is one of the biggest

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benefits of the NUA? It’s the taxation angle. The appreciation on employer securities that are transferred in kind

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to a brokerage account as part of the NUA are not taxed upon the transfer. Shares will only be taxed when later

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sold, and they will receive preferential long-term capital gains treatment. There are multiple approaches on whether to take a full in-kind

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transfer, or select specific lots to transfer, or to not take an NUA at all. We will be hosting a series of weekly

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episodes over the next several months, discussing more of the details surrounding NUA strategies to boost

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your retirement resources. So, until our next episode, keep searching for opportunities to enhance your wealth.