Calculating NUA in 5 Easy Steps

NUA - Net Unrealized AppreciationWhat is NUA?

NUA is short for “Net Unrealized Appreciation” of employer securities. It’s the difference between the cost basis and the market value of employer securities held inside a qualified plan such as a 401(k). To take advantage of a special tax break for NUA, there must be a triggering event [separation from service (unless self-employed), disability (only if self-employed), attainment of age 59 ½ or death].

When should you consider using NUA?

You should consider using NUA when the cost basis of employer securities in your plan is much lower than the current market value. The special tax break for NUA allows you to pay long-term capital gains rates on the growth of your shares while inside the plan instead of ordinary rates, and you will not owe that tax until the shares are sold outside the plan. This can create up to a 20% tax savings.

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