Please note that Portnoff Financial has joined with Tempus Wealth Planning and some information here may no longer be applicable. Please contact Jeremy Portnoff at 949-226-8342 (CA) or 732-226-3113 (NJ) for additional information.  We apologize for any confusion while we are in transition. 

West Coast Phone: 949-226-8342
East Coast Phone: 732-226-3113


Net Unrealized Appreciation (NUA) tax break

NUA (Net Unrealized Appreciation) occurs when you have highly appreciated stock of your employer within your 401k. The NUA is the difference between the price which you purchased the stock and the current value. The NUA tax break allows you to transfer employer stock in-kind (without selling it) to a taxable brokerage account and the only tax you pay at the time of distribution will be ordinary income on the original cost. The NUA is taxed at long-term capital gains rates, which are usually lower than ordinary income, but only when the shares are sold.

The shares cannot be sold in the plan or rolled over to an IRA. If either of these events occurs, the tax break is lost forever. The distribution can only be done after a qualifying event such as termination of employment, death, or disability and the entire plan must be distributed in the same year. This means that if you transfer the stock out in kind, the rest of the plan balance must be distributed, or in most cases rolled over to an IRA so that the rest of the balance is not taxable.

Keep in mind that if you execute the NUA strategy and you are not yet age 59 ½, you will pay a 10% early distribution penalty of the value of the shares distributed.

NUA has many nuances. If this applies to you, be sure to consult both a well qualified financial advisor and CPA to assist you in such a transaction as mistakes are often not-fixable.
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