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Retirement Products

Net Unrealized Appreciation

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

The NUA tax break on lump-sum distributions from a qualified plan allows participants to trade ordinary federal income tax rates1 (37% top marginal bracket in 2019) for long-term capital gains treatment (maximum of 20%). To take advantage, a participant would transfer his/her company stock to a brokerage account (non-IRA) paying ordinary income tax on the amount the stock cost (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.

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

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

Assuming you NUA-qualify, you will not pay current income tax on the stock appreciation. Instead, in the year of distribution you would be subject to income tax on the basis only. 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. As shares are sold, only capital gains2 taxes apply to the shares sold, so the individual would then pay tax on the appreciation of the shares above the cost basis at a long-term, capital gains2 rate based on the initial transfer. It does not matter how long the shares were owned during plan participation.

Please consult an IRA specialist at 888-522-2388 for additional information.

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

Open an IRA

  1. Complete the writable IRA Application

  2. Print and send to Lord Abbett by mail, fax, email or use our Free FedEx shipping option

  3. You’ll receive a confirmation once your IRA is established

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