Net Unrealized Appreciation (NUA): What Does It Mean?

Net unrealized appreciation (NUA) is the growth in value of employer stock held inside a retirement plan like an ESOP or 401(k). Under a special tax rule, if you take that stock out in a lump-sum distribution, you pay ordinary income tax only on the stock's original cost basis, not its full value. The growth (the NUA) is taxed at long-term capital gains rates when you sell, no matter how long you hold it afterward.

This can mean significant tax savings, since capital gains rates are often lower than income tax rates. The catch is that the distribution has to follow strict rules: your entire plan balance must come out within one tax year, usually after you leave your job, reach 59½, or pass away. Because rolling company stock into an IRA gives up the NUA option for good, it's worth running the numbers with a tax professional first.