Net unrealized appreciation (NUA) vs. IRA rollover?
Consideration of NUA strategy is important if you are distributing highly appreciated employer securities from your prior employer's qualified plan, such as 401(k). Cost basis, the value of the employer contribution on your behalf is subject to ordinary income tax upon distribution. In addition, the 10% early distribution penalty may apply unless you have an exception (i.e. attained age 55 or older and separated from service). Taking in-kind distribution allows the appreciation (NUA) above the cost basis to be taxed at the more favorable capital gains tax rate. For this reason, upon separation from service it may be more tax advantageous to transfer the employer securities to a regular taxable account instead of rolling the asset into an IRA where future distribution will be taxed as ordinary income.
This information may help you analyze your financial needs. It is based on information and assumptions provided by you regarding your goals, expectations and financial situation. The calculations provided should not be construed as ERISA, financial, legal or tax advice. In addition, such information should not be relied upon as the only source of information. Any assumptions as to interest rates, rates of returns, inflation or other values are hypothetical and for illustrative purposes only. Your results may vary.
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