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Tax pros with these types of spouses or clients
Definition: NUA (Net Unrealized Appreciation)
The term NUA refers to the difference between what someone pays for employer’s stock, (the cost basis), and the stock’s appreciated fair market value.
Are you an employee who owns your corporate employer’s stock inside…
- A company 401(k)?
- An employee stock ownership plan (ESOP)?
- A profit sharing plan?
- Or other qualified employer-sponsored retirement plan?
If you do, let me ask you an important question…
What did you do with your employer’s stock?
Did you salt it away in your 401(k)?
Then hang on a minute. Before you roll your whole nest egg into an IRA, you need to take a look at what an NUA strategy can do for you.
Here’s the problem an NUA can help solve.
Down the road, when you sell your stock out of your retirement account, you won’t get capital gains treatment.
Instead, when you sell the stock, you’ll pay tax on the proceeds at ordinary income tax rates. These can run as high as 37% and could be going higher!
Check out the NUA alternative.
Instead of rolling the stock into an IRA, you can elect NUA treatment by transferring your company stock into a taxable brokerage account.
Yes. You have to pay tax that year at ordinary income-tax rates on the cost basis of the stock. But whenever you sell the stock, you pay tax on the appreciation above that cost basis at tax-favored long-term capital gains rates.
The good news is you pay no tax on your stock’s appreciation (fair market value minus the cost basis) until you sell it!
That’s just one of the ways net unrealized appreciation (NUA) can go to work for you.
Is NUA treatment the right choice for you?
Not necessarily. NUA treatment isn’t always the best tax strategy.
Unlike with a rollover into an IRA, you’ll have to pay income tax immediately on your stock’s cost basis.
Whether this is advisable depends on many factors. So it makes sense to discuss all these issues with a tax professional.
Does this all sound complex? Yes it does. Because it is complex. For a simplified explanation of all the details…