Net Unrealized Appreciation (NUA) | Lord Abbett

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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 tax in addition to paying ordinary income tax on the amount of basis placed in the brokerage account.

To be eligible to receive NUA tax-treatment, severalrules 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.

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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