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    Retirement · Employer Stock

    NUA: Employer Stock in Your 401(k)

    The §402(e)(4) NUA election converts appreciation on employer stock from ordinary income (up to 37%) into long-term capital gain (0/15/20%). This calculator compares NUA head-to-head against a standard IRA rollover, and flags the lump-sum trap.

    IRS-Sourced
    Current return
    Updated Reviewed for 2025 & 2026 tax years

    Should I elect NUA on employer stock in my 401(k)?

    NUA generally wins when the plan's cost basis is a small fraction of the stock's current FMV (roughly 25% or less). You pay ordinary tax on the basis in the distribution year, but the appreciation is taxed at long-term capital gains rates when sold — regardless of post-distribution holding period. Requires a qualifying lump-sum distribution: entire plan balance in one tax year, after a triggering event with no prior partial distribution.

    • NUA = FMV at distribution minus the plan's cost basis in the employer stock.
    • Ordinary income tax applies to the basis in the distribution year; NUA is LTCG when sold.
    • Qualifying triggering events: separation from service, disability, death, or reaching age 59½.
    • Any prior partial distribution after the latest triggering event permanently disqualifies NUA (lump-sum trap).
    • 10% early-withdrawal penalty (if applicable) applies to the basis only, not the NUA.
    • The age-55 separation exception never covers IRA withdrawals: a rollover withdrawn before 59½ owes 10% of the whole taxable withdrawal.

    Source:IRC §402(e)(4) / IRS Pub 575

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    In years; enter 59.5 once you have reached 59½. The rollover column's IRA withdrawal is at this age plus the months held.

    Age 50 (or 25 years of service under the plan, if earlier) for qualified public-safety employees and private-sector firefighters. Waives the 10% on the NUA basis only; it never covers IRA withdrawals.

    You're totally and permanently disabled, or you receive the account as a beneficiary after the owner's death. Waives the 10% in both columns.

    Lump-sum trap: any partial distribution taken from this plan after your most recent triggering event permanently disqualifies NUA. Verify with your plan administrator before executing.
    NUA advantage vs. rollover
    +$56,143
    Basis ratio 16.7% — strong NUA candidate
    Sale year: 2027 or 2028 (depends on the distribution month)
    NUA election
    Ordinary tax on basis$16,772
    LTCG on realized NUA$56,250
    Post-dist gain tax$3,750
    NIIT (3.8%, post-dist gain only)$950
    Total tax$77,722
    Net proceeds$397,278
    Roll over, sell in the IRA, withdraw it all
    Ordinary tax on the full IRA withdrawal$133,865
    Total tax$133,865
    Net proceeds$341,136

    Selling inside the IRA isn't taxed; tax arrives only when you withdraw. This column assumes you withdraw everything in the year of sale, which is the like-for-like comparison with selling NUA shares. Spreading IRA withdrawals over several years can lower it.

    Sale in a later tax year (2027 or 2028): the gain is stacked on that year's other taxable income, not on the distribution year's income plus the basis. The rollover column's withdrawal is timed with the sale.
    Tax on the sale uses 2026 brackets as a stand-in for 2027 or 2028.
    IRC §402(e)(4)

    How the NUA election works

    Distribution year. Take the employer stock in kind. Pay ordinary income tax on the plan's cost basis (Form 1099-R Box 6). The NUA portion (FMV − basis) is NOT taxed in the distribution year.

    Sale year. When you sell, the NUA is LTCG regardless of your post-distribution holding period — this is the entire point of the election. The gain is taxed in the year you sell, stacked on that year's income; a sale more than 12 months after the distribution is always in a later tax year. Any additional appreciation after distribution follows normal holding-period rules. If the price falls after distribution, only the NUA you actually realize is taxed; there is no separate loss unless you sell below the plan's cost basis, and then up to $3,000 of the loss ($1,500 married filing separately) offsets ordinary income each year.

    Rollover alternative. Rolling the shares into an IRA defers 100% of the tax, but converts every future dollar to ordinary income. No NIIT applies to IRA distributions (§1411(c)(5)), but ordinary rates typically exceed LTCG rates by 10–20 percentage points. The NUA itself is also exempt from the 3.8% NIIT (Treas. Reg. §1.1411-8(b)(4)(ii)); only appreciation after the distribution is net investment income.

    Sources & References

    Primary references used for this content

    IRC §402(e)(4)

    Net Unrealized Appreciation

    Statutory basis for NUA on employer securities

    View on law.cornell.edu

    IRS Pub 575

    Pension and Annuity Income

    Includes lump-sum distribution and NUA rules

    View on irs.gov

    Form 1099-R Instructions

    Distributions From Pensions, Annuities, Retirement Plans

    Box 6 reports net unrealized appreciation in employer securities

    View on irs.gov

    IRC §72(t)(2)(A)(v)

    Age-55 Separation Exception

    Exception to 10% early-withdrawal penalty

    View on law.cornell.edu

    IRC §1411(c)(5)

    NIIT Exclusion for Qualified Plan Distributions

    Why IRA distributions escape NIIT

    View on law.cornell.edu

    Treas. Reg. §1.1411-8(b)(4)(ii)

    NUA Is Not Net Investment Income

    NUA realized on a sale escapes NIIT; post-distribution appreciation does not

    View on law.cornell.edu

    ✓6 primary sources; links re-checked on a weekly rotation by the source watcher

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    Disclaimer: This calculator provides estimates for educational purposes only. Not tax, legal, or financial advice. Results may vary based on your specific circumstances. Consult a qualified CPA or tax professional for personalized guidance.