Net Unrealized Appreciation (NUA)

What if a chunk of your 401(k) could be taxed at the capital gains rate instead of as ordinary income? If you hold your employer’s stock in that plan, it can. Net Unrealized Appreciation is the IRS rule that lets you move appreciated company shares out of a 401(k) and tax the growth at the lower long-term capital gains rate rather than your top ordinary rate.

How it works

NUA is the difference between what your company stock cost when it landed in your plan and what it’s worth now. When you take a qualifying lump-sum distribution, you pay ordinary income tax only on the original cost basis. The appreciation, the NUA, gets taxed at long-term capital gains rates whenever you sell the shares, even if you sell the next day.

For 2026, long-term gains top out at 20 percent for the highest earners, while ordinary income reaches 37 percent. That gap is the whole strategy.

A quick example

You retire with company stock in your 401(k) that cost $100,000 and is now worth $600,000. Roll it all to an IRA the normal way and the full $600,000 is ordinary income whenever it comes out. Use NUA instead: you pay ordinary tax on the $100,000 basis today, and the $500,000 of appreciation is taxed at capital gains rates when you sell. On half a million dollars, the rate difference is real money.

The part most people miss

NUA only works on a lump-sum distribution after a triggering event like leaving the job, and the company stock has to move in-kind, as actual shares, not cash. Roll the stock into an IRA first and the chance is gone for good. There’s also a real tradeoff: the basis is taxable now, and these shares don’t get the step-up in basis that other inherited assets enjoy. The bigger the appreciation relative to the basis, the better NUA looks.

When it pays off

This shines for long-tenured employees who got their stock cheap and watched it climb, the classic concentrated-position problem. It pairs with a plan to diversify out of that single stock over time. Walk through the timing and the triggers in Net Unrealized Appreciation (NUA) Strategy.

NUA is a rare gift in a retirement account: a slice taxed like an investment, not like a paycheck. But you only get one shot, so don’t roll it away by accident.