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Net Unrealized Appreciation (NUA)

Net Unrealized Appreciation is the difference between the current value of employer stock and its original cost basis, which receives favorable long-term capital gains tax treatment when distributed in-kind.

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Exam Tip

NUA = employer stock appreciation taxed at capital gains. Cost basis = ordinary income. NO step-up at death!

What is Net Unrealized Appreciation?

NUA tax strategy for employer stock in 401(k).

Tax Treatment

ComponentTax Treatment
Cost BasisOrdinary income at distribution
NUA (Appreciation)Long-term capital gains when sold

Requirements

  • Lump-sum distribution
  • After triggering event (separation, 59 1/2, disability, death)
  • In-kind distribution to taxable account

No Step-Up at Death

NUA does NOT receive step-up in basis at death.

Study This Term In

SIE ExamSeries 7Series 65Series 66

Related Terms

401(k)

A 401(k) is an employer-sponsored retirement savings plan that allows employees to contribute pre-tax dollars, with potential employer matching, and tax-deferred growth until withdrawal.

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