Net Unrealized Appreciation - NUA and Some Other Important Letters

At Premier Financial Management, we focus on supporting people that value hard work and are focused on building and maximizing their retirement. We truly enjoy supporting the people in our local community and across the country who understand those values. That’s why hard-working people like you trust us with their money.  

Please Note: The concept of Net Unrealized Appreciation (NUA) is not a difficult one to understand. But, by not taking the time to understand it and the risks of not handling it properly, you could expose yourself to some other letters t-a-x-e-s unnecessarily.

What You Need to Know:

NUA is important if you are distributing highly appreciated stock from your 401k plan. 

Your company may offer the opportunity to own stock in the company. Owning company stock allows you to share in the potential growth of the company’s value. 

The NUA is the difference between the average cost basis of shares of the employer stock and the current market value of the shares. 

Why Should I Care?

If NUA is not done correctly, you could end up owing much more in taxes than expected. Some mistakes include: (These all need to be reviewed.)

• Not using the correct wording (“In-kind transfer” vs. “rollover”) when making a distribution
• Not making sure that the 401k account is emptied within 12 months after the NUA transfer (sometimes there is a subsequent deposit that is forgotten about)
• Failing to record the correct cost basis in the new brokerage account.
• Making sure you understand the tax at income rates on cost basis for that year.
• Not working with your CPA to make sure income going forward is taxed correctly.  (If you don’t work with a tax professional, that’s another reason to call me.)  While I don’t prepare taxes, I can help to ensure that your distribution is handled properly. 
• Not understanding the risks associated with staying invested in the company stock.
• The use of a company based managed program through your 401k program may automatically sell you out of company stock based on your age appropriate profile.  You may not want that to happen.

What Should I Do Next?

Keep in mind that we specialize in handling NUA and that we are here to help!

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We’ll be sending out more info from time to time. In the meantime, be well and . . . try not to work so hard.