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.

1 Income taxes can be postponed until a later date; examples include IRAs and 401(k) plan earnings.

2 An increase in the value of a capital asset, such as a mutual fund or a common stock. If the asset is sold, the gain is a realized capital gain, which may be either short term (one year or less) or long term (more than one year).

There may be fees, expenses, taxes, and penalties associated with early IRA withdrawals.

Lord Abbett will waive (or otherwise pay) the yearly $10.00 custodial fee that would be charged each year on an ongoing basis to every new IRA account and, therefore, will not assess a custodial account fee in 2022 or any year afterward. Fund level fees and expenses are still applicable. Please see the current prospectus.

To comply with Treasury Department regulations, we inform you that, unless otherwise expressly indicated, any tax information contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or (ii) promoting, marketing, or recommending to another party any transaction, arrangement, or other matter.

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