What is Net Unrealized Appreciation (NUA)?

NUA is the difference between your cost basis in employer stock and its current market value when distributed from a 401(k) or ESOP. With NUA treatment, you pay ordinary income tax on the cost basis only (the original cost), but long-term capital gains rates (15-20%) on the appreciation when you eventually sell — instead of ordinary income tax (22-37%) on the full value as you would with an IRA rollover.

What are the requirements for NUA treatment?

Three requirements: (1) You must take a lump-sum distribution of the ENTIRE vested 401(k) balance in a single tax year (not just the stock). (2) The stock must be employer-issued securities. (3) The distribution must occur after a qualifying event: separation from service, reaching age 59½, total disability, or death. Failing any requirement disqualifies the NUA election. All other (non-stock) assets must be distributed in the same tax year; they typically roll to an IRA.

When does NUA make sense?

NUA is most beneficial when: (1) cost basis is low relative to current value (large appreciation = large LTCG-treated portion), (2) you're in a high ordinary income bracket but stock would qualify for low/middle LTCG rates, (3) you can hold the distributed stock at least one year to qualify for LTCG on appreciation, and (4) you don't need the full balance compounding in tax-deferred status. Less beneficial when basis is high relative to value, you're already in low brackets, or concentration risk dominates the tax analysis.

Can I diversify after electing NUA?

Yes, and often you should. The NUA election locks in tax treatment; you can then sell the stock and diversify. You'll owe LTCG on the NUA (and any post-distribution gain) at sale, but you eliminate concentration risk. Many advisors recommend "NUA-then-diversify" for clients with concentrated employer stock — capture the tax benefit, then immediately sell and diversify into broad index funds. The tax cost of selling is usually small compared to the risk of holding a single stock long-term.

What happens to NUA stock at death?

Mixed treatment. The NUA itself (appreciation up to distribution date) stays taxable to heirs at long-term capital gains rates when they sell — it does NOT get stepped-up basis. Post-distribution appreciation (after the stock was distributed to your taxable account) DOES get stepped-up basis at death, so heirs only pay capital gains on gains after your death. This makes NUA-then-hold a planning option for some estates, though concentration risk typically dominates. Estate planning attorney consultation is valuable for material balances.

NUA Company Stock Calculator

Compare the tax impact of an NUA distribution of company stock from your 401(k) versus a standard rollover to an IRA. NUA lets you pay lower capital gains rates on stock appreciation instead of ordinary income tax rates.

Net Unrealized Appreciation (NUA) is a specialized tax election available when you have employer stock inside your 401(k) at separation from service (retirement, layoff, age 59½, etc.). The strategy: instead of rolling the company stock into an IRA (where all future withdrawals are taxed as ordinary income), you distribute the stock directly to a taxable brokerage account. You pay ordinary income tax only on the original cost basis (often a small fraction of current value), and the appreciation — the NUA — is taxed at the much lower long-term capital gains rate when you eventually sell.

The savings can be substantial. Consider an executive with $500K of employer stock that originally cost $100K to acquire (through ESOP contributions, profit sharing, or 401(k) match in company stock). Standard rollover: future withdrawals all taxed at ordinary rates (32-37% federal + state). NUA election: pay ordinary tax on $100K basis immediately (~$32K), then pay 15-20% capital gains on the $400K NUA whenever you sell. The capital-gains-vs-ordinary delta on $400K of appreciation alone can be $50-80K in federal tax savings.

This calculator models the comparison: total tax under NUA election (ordinary on basis + LTCG on appreciation) vs. IRA rollover (ordinary on entire distribution at withdrawal). It accounts for state tax differences and time-value implications. Important caveat: NUA is a one-shot election with strict requirements — lump-sum distribution in a single tax year, triggering event must qualify, and the election can't be undone. The strategy is most valuable when basis is low relative to current value and you're in a high tax bracket. Always coordinate with a tax advisor familiar with NUA before electing — mistakes are expensive and irreversible.

Inputs

Number of Shares

Current Share Price

Cost Basis Per Share

Ordinary Income Tax Rate (%)

Long-Term Capital Gains Rate (%)

Years Until Sale

Expected Annual Growth

State Tax Rate (%)

Results

Tax Savings with NUA

$93,717

NUA Amount

$350,000

NUA Net Proceeds

$535,521

Rollover Net Proceeds

$441,804

Strategy Comparison

NUA vs Rollover Comparison

Item	NUA Strategy	IRA Rollover
Total Stock Value (Today)	$500,000.00	$500,000.00
Future Value at Sale	$701,275.87	$701,275.87
Tax at Distribution	$55,500.00	$0.00
Tax at Withdrawal/Sale	$110,255.17	$259,472.07
Total Tax	$165,755.17	$259,472.07
Net Proceeds	$535,520.69	$441,803.80

Last updated: May 27, 2026Reviewed by the CalcMountain editorial team

Formula

NUA election tax (federal): Ordinary tax on basis = Cost Basis × Shares × Ordinary Rate LTCG tax on NUA = (Current Price − Cost Basis) × Shares × LTCG Rate LTCG tax on future appreciation = (Future Price − Current Price) × Shares × LTCG Rate Total NUA tax = Ordinary tax on basis + LTCG on NUA + LTCG on future appreciation IRA rollover tax (for comparison): Future value of shares = Current Value × (1 + Growth Rate)^Years Tax at withdrawal = Future Value × Ordinary Rate Note: IRA rollover defers tax, allowing larger pre-tax balance to compound. NUA pays some tax now but locks in LTCG treatment for the appreciation portion. Savings from NUA = IRA Rollover Tax − Total NUA Tax State tax: typically added to both ordinary and LTCG components (some states tax LTCG at ordinary rates, others have lower or zero rates on capital gains). Example: 5,000 shares at $100 (current), $30 basis. Total value $500K, total basis $150K, NUA $350K. Tax brackets: 32% ordinary, 15% LTCG, 5% state. Hold 5 years post-distribution, expected 7% growth. NUA election (sell immediately): Ordinary tax on basis: $150K × 0.32 = $48K federal + $150K × 0.05 = $7.5K state = $55.5K LTCG on $350K NUA: $350K × 0.15 = $52.5K federal + $350K × 0.05 = $17.5K state = $70K Total tax: $125.5K Net proceeds: $500K − $125.5K = $374.5K NUA election (hold 5 years, then sell): Future price: $100 × 1.07^5 = $140.26 → Future value $701K Ordinary tax on basis (paid at distribution): $55.5K LTCG on $350K NUA + $200.5K post-distribution gain: $550.5K × 0.20 (combined fed+state) = $110.1K Total tax: $165.6K Net proceeds: $701K − $165.6K = $535.4K IRA rollover (hold 5 years inside IRA, then withdraw): Future value: $701K Ordinary tax on full $701K: $701K × 0.37 (combined fed+state) = $259.4K Net proceeds: $441.6K NUA savings vs. IRA rollover (with hold): $535.4K − $441.6K = $93.8K Savings driven by LTCG treatment on the NUA portion AND on post-distribution appreciation.

How to use this calculator

Confirm NUA eligibility first: the distribution must be a lump-sum (entire 401(k) balance distributed in one tax year), and must follow a qualifying event (separation, age 59½, disability, death). Mistakes here disqualify the entire strategy.
Enter total employer stock shares.
Enter current share price.
Enter cost basis per share (your plan administrator can provide — typically much lower than current price for long-tenure employees).
Enter your ordinary income tax rate (combined federal + state if state taxes ordinary income).
Enter long-term capital gains rate (15% for most taxpayers; 20% for high earners; 0% for low-bracket).
Enter expected years until sale and growth rate for projection.
Compare NUA total tax vs. IRA rollover total tax. NUA typically wins when basis is low relative to current value and ordinary rate is much higher than LTCG rate.
Always consult a CFP or CPA familiar with NUA before electing. The election is irreversible and mistakes are expensive.

Worked examples

High-appreciation NUA win

Executive with $1M of employer stock, $200K cost basis. 35% ordinary, 20% LTCG, 5% state. NUA election (immediate sale): Ordinary tax on $200K basis: $80K LTCG on $800K NUA: $200K Total: $280K → Net $720K IRA rollover (then sell same year): Ordinary tax on $1M: $400K → Net $600K NUA saves $120K immediately. The 800K appreciation portion gets 25% combined rate vs. 40% combined ordinary — a 15-percentage-point savings on a huge dollar base.

NUA marginal — small NUA

Mid-career employee with $200K of employer stock, $150K cost basis. 24% ordinary, 15% LTCG, 0% state. NUA election: Ordinary on $150K: $36K LTCG on $50K: $7.5K Total: $43.5K → Net $156.5K IRA rollover (at withdrawal in retirement at lower 22% bracket): Ordinary on $200K: $44K → Net $156K Essentially a wash. With low appreciation, NUA's main benefit (LTCG on the NUA) is small. The complexity and lump-sum requirement may not be worth marginal savings. IRA rollover preserves flexibility and tax-deferred compounding.

Diversification consideration

Engineer with $400K of employer stock representing 70% of net worth, $80K basis. NUA shows substantial tax savings, but concentration risk is the bigger concern. Tax analysis: NUA saves ~$60K vs. IRA rollover. Risk analysis: 70% in single stock is dangerous (think Enron, Lehman employees). Even with NUA tax savings, diversification is often the priority. Hybrid approach: NUA election on the company stock (capture tax benefit), then sell immediately and diversify into broad index funds. You pay LTCG on the NUA now but eliminate concentration risk. The cost of selling (LTCG) is usually small compared to the risk of holding 70% in one stock. Tax efficiency matters; diversification matters more for long-term wealth preservation.

When to use this calculator

Use this calculator when separating from an employer where you hold employer stock inside your 401(k) or ESOP, when planning retirement strategy with concentrated employer stock, or when modeling tax-optimization scenarios for executive compensation packages.

Pair with capital-gains-tax (for the LTCG side), stock-profit (for post-distribution holding analysis), and roth-vs-traditional-401k (for general retirement tax planning).

Critical NUA practical considerations:

1. **Strict eligibility requirements.** Distribution must be a lump-sum (entire vested 401(k) balance distributed in a single tax year — not just the stock portion). Triggering event must be: separation from service, reaching age 59½, disability, or death. Failing any requirement disqualifies the entire NUA election.

2. **Election is irreversible.** Once you elect NUA and distribute the stock to a taxable account, you can't undo it. If you change your mind, you pay the ordinary tax on basis with no way back. Decide carefully and confirm with professional advisors.

3. **Diversification often outweighs tax savings.** Concentrated employer stock is a major risk (job + investment both depend on company health — see Enron). Even when NUA shows clean tax savings, if employer stock is more than 10-20% of net worth, diversification typically beats tax optimization. Consider electing NUA THEN selling to diversify, accepting the LTCG tax cost in exchange for risk reduction.

4. **Coordinate with broader retirement income strategy.** NUA-distributed stock in taxable account creates a different income/tax situation than IRA distributions in retirement. Plan how it fits with Social Security, Medicare IRMAA tiers, and Roth conversion strategies.

5. **State tax variations matter.** Some states have no income tax (FL, TX, WA, etc.) — NUA timing strategy may favor moving to no-tax state before triggering. Others tax LTCG at ordinary rates (CA), reducing NUA benefit. Consider state residency in timing.

6. **Step-up at death for heirs.** Stock distributed under NUA in a taxable account gets stepped-up cost basis at death (for the post-distribution appreciation portion). The NUA itself stays taxable to heirs at LTCG rates. Estate planning attorney input is valuable for high-net-worth situations.

Common mistakes to avoid

Failing to take a true lump-sum distribution. Partial distributions disqualify NUA. The entire 401(k) balance must be distributed in one tax year.
Triggering NUA before qualifying event. Distribution must follow separation, age 59½, disability, or death. Premature distributions fail.
Electing NUA on highly diversified 401(k). NUA only benefits employer stock. For diversified holdings, normal IRA rollover preserves tax deferral.
Holding concentrated stock too long for "tax efficiency." Diversification risk usually exceeds tax savings. Consider NUA-then-sell to capture tax benefit but eliminate concentration risk.
Not coordinating with state residency planning. Moving to a no-tax state before NUA triggering can save 5-13% on the entire transaction.
Going it alone without professional guidance. NUA rules are complex and mistakes are irreversible. CPA + CFP familiar with NUA is essential before electing.

Frequently Asked Questions

Sources & further reading

Topic 412 — Lump-Sum Distributions — U.S. Internal Revenue Service
Publication 575 — Pension and Annuity Income (NUA section) — U.S. Internal Revenue Service
NUA Strategy — Practical Guidance — U.S. Securities and Exchange Commission

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