Glossary
Net Unrealized Appreciation
Net unrealized appreciation (NUA) is the growth in employer stock held inside a workplace retirement plan, which special tax rules allow to be taxed at long-term capital gains rates instead of ordinary income rates when handled correctly.
The technique: at a qualifying event, the employer stock is distributed in-kind to a taxable account (not rolled to an IRA) as part of a lump-sum distribution of the whole plan. Ordinary income tax is due immediately on the stock's original cost basis, but the appreciation is taxed at capital gains rates when eventually sold.
Why it matters in practice
For long-tenured employees holding highly appreciated company stock, NUA treatment can save a substantial amount versus rolling everything to an IRA and later paying ordinary rates on the whole balance. The rules are strict and easily forfeited — an ill-timed partial rollover can void the treatment permanently — so this is a decision to model with a tax professional before touching the account.
Related terms: Rollover · Capital Gain · Cost Basis · Lump Sum · 401(k)