Net Unrealized Appreciation: When Company Stock in a 401(k) Gets Special Tax Treatment

May 15, 2026 • By Aimee Calderon, CFP®

When changing jobs or transitioning into retirement, there are many important factors to consider. If you own company stock and are contemplating a rollover of your 401(k), it is important to explore a lesser-known tax strategy called net unrealized appreciation (NUA). NUA represents the difference between the cost basis of the company stock (the price at which it was originally purchased) and its current market value.

The NUA strategy involves distributing company stock out of a 401(k) to a taxable brokerage account, such as a trust account or individual account. At the time of the distribution, ordinary income tax is paid on the cost basis of the stock. The appreciation (NUA) is then taxed later at long-term capital gain rates when the stock is sold.

This differs from leaving the company stock inside the retirement account, where withdrawals are taxed entirely as ordinary income based on the stock’s value at the time of distribution.

Several requirements must be met to qualify for NUA treatment:

• The stock must be distributed in-kind as part of a lump sum distribution.

• A triggering event must occur, such as turning 59½, leaving your employer, death, or disability.

• The stock must be in a tax-deferred retirement account, such as a 401(k).

• The entire retirement account must be distributed in the year the NUA strategy is executed. You cannot have taken a distribution from the 401(k) in a prior year.

• The company stock must be taken out of the retirement account and placed in a non-qualified brokerage account.

• The remaining assets in the retirement account can be rolled into an IRA. 

Depending on your tax bracket and the level of appreciation in the stock, this strategy may result in significant tax savings. Below are two examples illustrating when NUA may or may not be advantageous. 

Example 1

Company Stock Basis:	$30,000
Current Stock Value:	$200,000
Current Marginal Income Tax Bracket:	24%
Capital Gain Tax Rate:	15%
Estimated Marginal Tax Bracket in Retirement:	24%
Current Tax on NUA Distribution:	$7,200
Cap Gain Tax on Future Sales (assumes no further appreciation):	$25,500
Total Tax If Using NUA Strategy:	$32,700
Income Tax If NUA Is Not Used (assumes no further appreciation):	$48,000
Tax Savings Using NUA:	$15,300

Example 2

Company Stock Basis:	$100,000
Current Stock Value:	$180,000
Current Marginal Income Tax Bracket:	32%
Capital Gain Tax Rate:	15%
Estimated Marginal Tax Bracket in Retirement:	24%
Current Tax on NUA Distribution:	$32,000
Cap Gain Tax on Future Sales (assumes no further appreciation):	$12,000
Total Tax If Using NUA Strategy:	$44,000
Income Tax If NUA Is Not Used (assumes no further appreciation):	$43,000
Tax Savings Using NUA:	($800)

Please note that these examples reflect federal taxes only. For our clients in California, there is no preferential state tax rate for capital gains, so no state-level savings apply. State income tax would increase the total tax figures shown above.

In addition to the factors outlined, it is also important to consider the impact of an NUA strategy on the income-related monthly adjustment amount (IRMAA) if you are currently on Medicare or will be in the next couple of years following an NUA election. The distribution of company stock increases ordinary income in the year of execution and may result in higher Medicare premiums. Because IRMAA is essentially an additional tax, it should be factored into the overall analysis.

While NUA can be a complex strategy, it may be an effective one to reduce taxes on highly appreciated company stock. It is important to work with a financial advisor to help ensure that all requirements are met and the strategy aligns with your overall financial plan. Schedule a complimentary introductory call with a fee-only, fiduciary advisor.