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Retirement Products

Net Unrealized Appreciation

When appreciated company stock is included in a retirement plan distribution, recipients may benefit by transferring the shares to a taxable brokerage account while rolling over the non-stock assets to an IRA. A benefit, net unrealized appreciation (NUA) allows a plan participant to potentially take advantage of lower tax rates.

NUA tax break on lump-sum distributions from a qualified plan allows participants to trade ordinary federal income tax rates1 (37% top marginal bracket) for long-term capital gains treatment (maximum of 20%). To take advantage, a participant would transfer their company stock to a brokerage account (non-IRA) paying ordinary income tax on the amount the basis only. Subsequently, when sold, the stock would be subject to long-term capital gains rates. Long-term capital gains treatment applies even if the stock is sold prior to being held for one year. However, depending on age and when separation occurs, there may be a 10% penalty in addition to paying ordinary income tax on the amount of basis placed in the brokerage

To be eligible to receive NUA tax-treatment, a number of s rules need to be followed including:

  • Distribution must qualify as a “lump-sum.”
  • Distribution must be due to certain events including: turning age 59½ (if plan permits), separation from service, or retirement.

Learn more about Net Unrealized Appreciation
 

This information is not intended to be tax or legal advice. For more information on this topic, contact your legal or tax advisor.

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