Company stock in your 401(k): when NUA saves tax

If your 401(k) holds your employer’s stock, the net unrealized appreciation (NUA) rules can save a lot of tax, but only when the plan’s cost basis in those shares is low. You move the shares to a regular brokerage account as shares, pay income tax only on the cost basis now, and pay long-term capital gains rates on the rest when you sell. In 2026 the long-term rate is 15% for most households (0% below $98,900 of taxable income for joint filers, 20% above $613,700), against income tax rates up to 37%. In our example below, $400,000 of stock with a $40,000 basis saves about $32,400 compared with rolling it into an IRA. Get the cost basis from your plan before anything moves: once the shares are in an IRA, NUA is gone.

The glossary entry for NUA explains the mechanics. This guide is about deciding whether to use it.

A worked example

Say a married couple’s plan holds company stock worth $400,000, bought over the years for $40,000. They pay a 24% income tax rate now and expect the same in retirement, and they’d sell the stock over a few years at the 15% capital gains rate.

• Roll it all to an IRA. Every dollar is taxed as income when withdrawn: $400,000 at 24% is about $96,000.
• Use NUA. The $40,000 basis is taxed as income now: about $9,600. The $360,000 of NUA is taxed at 15% when sold: about $54,000. Total about $63,600.

Now change one number. If the basis were $280,000 instead, NUA would cost about $85,200 ($67,200 now, $18,000 later), saving only about $10,800, and most of that tax would be due this year rather than spread over retirement.

The example leaves out growth, state tax and the 3.8% net investment income tax that higher earners pay on investment gains. Those can move the answer either way, which is why the numbers should be run on your own figures.

When NUA usually pays off

• The basis is a small share of the value. As a rough guide, the lower the basis relative to today’s price, the bigger the saving.
• You’ll sell within a few years. NUA trades decades of tax deferral for a lower rate. If you’ll spend or diversify the shares soon, you give up little deferral.
• You left at 55 or later and need money before 59½. No 10% penalty applies to the basis, and once the shares are in a brokerage account you can sell them whenever you like at capital gains rates.
• You expect a high income tax rate in retirement, for example from a pension or large required withdrawals.

When it usually doesn’t

• The basis is close to the value. You’d pay most of the tax now for a small saving.
• You’re young and in no hurry. Paying income tax on the basis today gives up years of tax-deferred growth on that money.
• The stock is most of what you own and you won’t sell it. NUA isn’t a reason to keep a concentrated position. FINRA’s rollover guidance flags concentration in employer stock as a risk in its own right. Our guide to advisors for RSUs and stock options covers how to set a selling plan.

Rules that trip people up

It has to be a lump-sum distribution. The IRS defines that as your entire balance from all of the employer’s qualified plans of one kind, paid out within one tax year, after a triggering event: leaving the job, reaching 59½, death, or disability for the self-employed. The stock goes to a brokerage account; the rest can be rolled into an IRA in the same year.

The shares must move as shares. If you sell inside the plan first, or roll the shares into an IRA, NUA treatment is lost.

Earlier withdrawals can use up the trigger. If you took part of the balance out in an earlier year after leaving, you may need a new triggering event, such as reaching 59½, before NUA is available.

The 10% penalty applies to the basis only. If you’re under 59½ and left before the year you turned 55, the cost basis taxed at distribution can carry the 10% early-distribution tax. In the example, that adds $4,000. The NUA itself isn’t taxed at distribution, so the penalty doesn’t reach it.

Growth after the distribution follows normal rules. The NUA is long-term gain whenever you sell. Any increase after the shares leave the plan is short- or long-term depending on how long you hold them from that date.

You don’t have to use it for every share. Many plans let you move some shares to a brokerage account and roll the rest into the IRA. Ask whether your plan tracks basis by lot, because the lowest-basis shares get the most from NUA.

Questions to ask

Ask the plan administrator:

1. What is the cost basis of my company stock, and is it tracked by lot or as an average?
2. Can you distribute the stock in kind to a brokerage account and roll the rest to an IRA in one request?
3. Have I taken any distribution that would affect a lump-sum distribution this year?

Ask an advisor:

1. How many NUA distributions have you handled, and what went wrong on any of them?
2. What is my tax both ways, including state tax and the 3.8% tax, on my own numbers?
3. How would you sell or diversify the shares afterward?
4. Will you coordinate with my tax preparer on Form 1099-R and the basis?

When a fee-only advisor is worth it, and what it costs

NUA is one decision with a deadline: it has to be made before the rollover, and the whole distribution must finish within one tax year. A fee-only planner who has done it before is worth paying when the stock is a large part of your plan.

Few advertise it. Of the fee-only firm websites we read, 1% named concentrated stock positions as a specialty, against 63% for retirement planning. Ask the questions above to find out who has actually done it.

• One-time plan: a median $2,000 (middle half $845 to $3,600), which usually covers an NUA analysis alongside the rest of a retirement plan. See one-time plan costs.
• Hourly: a median $300 an hour, for checking the numbers someone else ran. See hourly planner costs.
• Ongoing planning: a median $4,500 a year, if you want help selling the shares over several years.

If an advisor charges a percentage, ask whether it applies to the company stock. At the median 1%, holding $400,000 of shares under management costs $4,000 a year, based on that median rate.

Where to look

Start with the retirement with concentrated positions specialty and the tax planning specialty. Advisors for pre-retirees, the advisors for pre-retirees list and retirement planning specialists see NUA most often. Senior leaders with large stock holdings can also look at advisors for executives and the advisors for executives list. If you’re also deciding what to do with the rest of the 401(k), see our guide to rolling over a 401(k) when you change jobs.