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Net Unrealized Appreciation

Rules and benefits

If you own employer stock in your employer’s retirement plan, and if that stock has appreciated when you retire or leave your company, you should be aware of Net Unrealized Appreciation Rules (NUA).

NUA allows individuals to take a withdrawal from their stock holdings as a capital gain, as opposed to income.

For example, say you own employer stock for which you paid $50,000, and today it is worth $250,000.

If you use NUA, on the $50,000 you will pay income taxes, but on the $200,000 you will pay capital gains taxes, which are 15% to 20% below income tax rates for most people.

The $200,000 is your NUA.  It will fluctuate as the stock moves up and down.

NUA is an important option.  It can reduce taxes, but it may concentrate risk during retirement when diversification is needed.

These are the opinions of financial advisor Tim Hayes and not necessarily those of Cambridge Investment Research. They are for informational purposes only, and should not be construed or acted upon as individualized investment advice.

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