The Pros and Cons of an NUA Strategy
Employer-issued stocks can be one attractive benefit an employer can offer. But while it has its benefits, it's natural to wonder what happens if you leave that job.
That's where net unrealized appreciation (NUA) strategies can sometimes be helpful. An understanding of NUA strategies can help you determine what to do with those company stocks to potentially manage your tax bill.
Remember, this article is for informational purposes only and is not a replacement for real-life advice. Make sure to consult your tax professional before modifying your approach with any unrealized appreciation issues.
Once your tax professional has provided guidance, your financial professional can offer insights regarding your overall asset allocation if you decide to realize any gains. Asset allocation is an approach to help manage investment risk. Asset allocation does not guarantee against investment loss.
What is Net Unrealized Appreciation (NUA)?
NUA is the difference between how much you paid or contributed to your company stock and its current market value. For example, if you were issued employer stock at $20 per share and it is now worth $50 per share, you would have an NUA of $30 per share ($50 - $20 = $30).
What are the NUA Rules?
Your NUA may be taxed differently than other payments. If the lump-sum distribution includes employer securities, the NUA may not be subject to tax until you sell the securities.1
With this in mind, a participant may be able to transfer company stock from their previous plan into a taxable investment account without treating the entire amount as ordinary income. But before exploring any choice in detail, seek the guidance of a tax professional while keeping your financial professional apprised of your decisions.
1.IRS.gov, January 23, 2023