NUA Calculator: How to Use It
Highly appreciated company stock inside a 401(k) can be taxed at capital gain rates instead of ordinary income rates.
What this calculator does
The NUA Calculator compares two strategies for leaving an employer with company stock in your 401(k). Strategy one: roll everything to an IRA, pay ordinary income tax on distributions later. Strategy two: distribute the company stock in-kind to a taxable account (paying ordinary income tax only on the cost basis now), roll the rest to an IRA, and pay long-term capital gains rates on the NUA when you eventually sell the stock.
The calculator shows the total federal tax under each path, the difference, and the ordinary tax rate at which the two paths break even. It also flags the 10% early distribution penalty on the basis when it applies.
What each input means
Cost basis of company stock
What the 401(k) plan paid for your company shares over the years. This is not what the shares are worth today. Your plan administrator (HR department or the 401(k) custodian) tracks cost basis; ask for it before you request the distribution. It's often labeled "employer securities cost basis" on distribution paperwork. This is the amount subject to ordinary income tax at distribution.
Many employees are surprised by how low the cost basis is relative to current value, especially if they've been accumulating shares for 20 or 30 years. A low basis means more NUA, which is what makes the strategy attractive.
Current fair market value of company stock
The current market price of all your company shares in the 401(k), valued at the time of distribution. This minus the cost basis equals your NUA. The plan values the shares on the distribution date. Use today's share price times your share count as a planning estimate.
Your ordinary income tax rate
The marginal rate you'll pay on the cost basis at distribution. If retiring at age 60 with lower income in that year, your effective rate may be lower than your rate while working. The year you take the NUA distribution matters a lot. Some people plan the distribution for a year where other income is low to reduce the ordinary income tax bite on the basis.
Long-term capital gain rate
The NUA is taxed at long-term capital gain rates when you sell the stock, regardless of how long you hold it after distribution. The applicable rate is 0%, 15%, or 20% depending on your total taxable income in the year you sell. The 3.8% net investment income tax doesn't apply to the NUA (Treas. Reg. 1.1411-8(b)(4)(ii)), but it can apply to any gain that builds up after the distribution.
The qualifying distribution requirement
NUA treatment requires a qualifying lump-sum distribution: the entire account must be distributed within one tax year, triggered by separation from service (for employees), reaching age 59 1/2, death, or disability (for the self-employed). Partial distributions don't qualify. The balance of all the employer's plans of the same type must be distributed. You can't cherry-pick.
The most common transaction: distribute company stock in-kind to a taxable brokerage account, and simultaneously roll all other 401(k) assets to an IRA. The stock goes to taxable; everything else goes to rollover IRA.
When NUA doesn't make sense
If the cost basis is high relative to current value (low NUA), the ordinary income tax on the basis at distribution eats most of the capital gain benefit. If you're in a high bracket and need the money soon, rolling to an IRA and doing future Roth conversions in lower-income years often beats NUA. Selling right after distribution is fine; the NUA still gets long-term rates. Run both scenarios in the calculator before deciding.
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Frequently asked questions
What is Net Unrealized Appreciation?
The difference between the cost basis of company stock in your 401(k) and its current fair market value. When you take a qualifying lump-sum distribution, you pay ordinary income tax only on the cost basis. The NUA is taxed at long-term capital gain rates when you eventually sell.
When does NUA beat rolling to an IRA?
When the cost basis is low relative to current value (high NUA), when you're in a lower ordinary income bracket at distribution, or when you plan to hold the stock long-term for ongoing capital gain treatment. Run both scenarios before deciding.
What qualifies as a lump-sum distribution?
The entire 401(k) balance must be distributed within one tax year, triggered by separation from service (employees), reaching 59 1/2, death, or disability (self-employed only). Partial distributions don't qualify. All of the employer's plans of the same type count as one plan.
What happens to the non-stock portion of the 401(k)?
Roll it to an IRA. In a typical NUA transaction, company stock goes in-kind to a taxable brokerage account, and all other 401(k) assets roll to an IRA. You pay ordinary income tax on the stock's cost basis at the time of distribution.
Does the 10% early withdrawal penalty apply?
The 10% penalty applies to the cost basis if you're under 59 1/2, unless an exception applies. The common one: you left this employer in or after the year you turned 55 (50 for qualified public safety employees), IRC 72(t)(2)(A)(v). The NUA itself isn't taxed at distribution, so it isn't penalized.