Hi Reader,
💰 Unlocking Tax Savings with Net Unrealized Appreciation (NUA)
If you have highly appreciated company stock in your 401(k), you might be sitting on a huge tax-saving opportunity.
With Net Unrealized Appreciation (NUA), you can transfer your company stock in-kind to a taxable brokerage account, allowing the growth portion to be taxed at lower long-term capital gains rates instead.
✅ Why does this matter?
- Ordinary income tax rates: 22-37%
- Long-term capital gains rates: 0-20%
- The difference can mean thousands in tax savings!
🔎 Who should consider NUA?
- Employees with highly appreciated company stock in a 401(k)
- Those expecting to be in a higher tax bracket later
- Individuals facing a low-income tax year (perfect for realizing gains at 0% capital gains tax)
⚠️ Key NUA Pitfalls to Avoid:
🚫 Missing the strict eligibility & timing requirements
🚫 Underestimating the tax hit on the stock’s cost basis
🚫 Holding a concentrated stock position without a diversification plan
💡 Real-World Example:
A 401(k) holder with $200K in employer stock (with a $30K cost basis) could save $15,300 in taxes by leveraging NUA instead of a traditional IRA rollover!
NUA is powerful, but it’s not for everyone. Getting it right requires careful planning.
If you hold company stock in your retirement plan, it’s worth exploring.
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David N. Waldrop, CFP®
Owner of Bridgeview Capital Advisors, Inc. a Registered Investment Advisor.
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