The NUA Strategy Retiring Executives Use to Cut Taxes on $500,000 of Company Stock in Their 401(k)

A 62-year-old retiree with Apple stock inside a 401(k) faces large embedded gains and a low original cost basis. Rolling the entire 401(k) balance to an IRA would forfeit Net Unrealized Appreciation treatment under IRC §402(e)(4), causing all withdrawals to be taxed as ordinary income. Under NUA, a lump-sum distribution after a triggering event allows the company shares to be moved in-kind to a taxable brokerage account. Ordinary income tax is paid only on the cost basis at distribution, while the appreciation is taxed later at long-term capital gains rates when the shares are sold. The example estimates substantially lower total tax under NUA than under an IRA rollover.

"That single move would cost her tens of thousands of dollars she will never get back, because it forfeits the only piece of the tax code written specifically for people in her situation: Net Unrealized Appreciation, codified at IRC §402(e)(4)."

"Inside a 401(k), every dollar eventually comes out as ordinary income. Roll the AAPL stock to an IRA and you lock that treatment in forever. NUA breaks the rule. If you take a lump-sum distribution of your entire 401(k) balance in a single tax year following a triggering event (separation from service, age 59½, death, or disability) and move the company shares in-kind to a taxable brokerage account, you pay ordinary income tax now only on the cost basis. The appreciation, the NUA itself, is taxed at long-term capital gains rates whenever you sell, regardless of how long you hold the shares afterward."

"Run the math on the executive's position. Ordinary income tax on the $80,000 basis at the 24% federal bracket is $19,200. The $420,000 of NUA sits tax-deferred until she sells. When she does, most of it falls in the long-term capital gains bracket, which for 2026 covers single filers with taxable income from about $49,450 up to roughly $501,050. 15% of $420,000 is $63,000. Total tax under NUA: roughly $82,200."

"Compare that to the IRA rollover. The full $500,000 eventually comes out as ordinary income. At 24% that is $120,0"

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