If your 401(k) holds company stock that has grown significantly since you bought it, there is a legal IRS strategy called Net Unrealized Appreciation — NUA for short — that can dramatically lower the taxes you owe when you take that money out. Instead of paying your ordinary income tax rate (which can be as high as 37%) on the full value of that stock, the NUA strategy lets you pay ordinary income tax only on what the stock originally cost inside the plan, and then pay the much lower long-term capital gains rate — 0%, 15%, or 20% — on all the growth. For many retirees, that one move saves tens of thousands of dollars.

What exactly is Net Unrealized Appreciation (NUA)?

NUA is the difference between what your employer stock originally cost inside your retirement plan (called the “cost basis”) and what it is worth today. For example, if your company shares cost $20,000 inside your 401(k) but are now worth $120,000, the NUA is $100,000. Under normal 401(k) withdrawal rules, you would owe ordinary income tax on all $120,000. With the NUA strategy, you only owe ordinary income tax on the $20,000 cost basis. The remaining $100,000 of growth gets taxed at the long-term capital gains rate when you eventually sell the shares — even if you sell them the very next day.

Who qualifies to use the NUA strategy?

Not everyone can use this move, so check these boxes carefully before you get excited. You must have employer stock sitting inside a workplace retirement plan such as a 401(k) or an Employee Stock Ownership Plan (ESOP). You must also have a “triggering event” — which means you have reached age 59½, separated from service (retired or left the job), become disabled, or the account holder has died. Critically, the entire balance of that plan must be distributed in a single tax year — you cannot cherry-pick just the stock. If these conditions are met, you roll the non-stock portion of your 401(k) into a traditional IRA as usual, and take the company stock out as an in-kind distribution directly to a taxable brokerage account.

How much could the NUA strategy actually save you?

Let’s run a simple comparison. Suppose you have $200,000 worth of employer stock with a cost basis of $30,000. Without NUA, you roll the shares into an IRA and eventually pay ordinary income tax on $200,000 — potentially $44,000 or more if you are in the 22% bracket. With NUA, you pay ordinary income tax on just $30,000 (about $6,600 at 22%), and then long-term capital gains tax on the $170,000 of appreciation. If your capital gains rate is 15%, that is $25,500. Total tax bill: roughly $32,100 — compared to $44,000-plus without NUA. That is a saving of more than $12,000, and the numbers get even better for higher earners or larger stock positions.

What are the risks and pitfalls to watch for?

The NUA strategy is powerful but not perfect for everyone. First, taking a lump-sum distribution in one tax year means the cost basis amount is treated as ordinary income immediately — so if the cost basis is large, it could push you into a higher bracket that year, trigger Medicare IRMAA surcharges (the extra premium high earners pay for Medicare Parts B and D), or make more of your Social Security income taxable. Plan the timing carefully, ideally with a CPA or financial advisor. Second, this only makes sense if the stock has genuinely appreciated. If your company stock has barely grown, the tax math may not work in your favor. Third, you are concentrating wealth in a single stock inside a taxable account — make sure you have a plan for diversifying after you sell.

How does NUA interact with Medicare IRMAA surcharges?

IRMAA — Income-Related Monthly Adjustment Amount — is a surcharge added to your Medicare Part B and Part D premiums if your income exceeds certain thresholds. In 2025, the standard Medicare Part B premium is $185 per month, but it can jump to $295 or higher per month depending on your income from two years prior. Because the NUA distribution triggers ordinary income on the cost basis in the year you take it, that income is reported on your tax return and could push you over an IRMAA threshold. The good news: the long-term capital gains portion (the NUA gain itself) counts as income too, so time your distribution in a year when your total income is manageable. If you are retiring mid-year or have other deductions available, that can help offset the impact.

How should I coordinate NUA with Social Security and RMD planning?

The NUA move does not exist in a vacuum — it connects directly to two other big retirement decisions: when you claim Social Security and when Required Minimum Distributions (RMDs) begin. Up to 85% of your Social Security benefit can be taxable depending on your combined income, so a large NUA distribution in the same year you start Social Security could make a bigger chunk of your benefit taxable. On the RMD front, the IRS requires you to start taking withdrawals from traditional IRAs and most 401(k)s at age 73 (as of 2025 and 2026 rules). Shares moved to a taxable brokerage account through NUA are no longer subject to RMDs, which is an added bonus — you control when you sell. Many retirees find it smartest to execute the NUA strategy before RMDs kick in, then decide on Social Security timing separately based on their health and income needs. Delaying Social Security past your full retirement age earns you an 8% benefit increase each year up to age 70, so if NUA can bridge part of your income gap in early retirement, that delay strategy becomes more achievable.

Is the NUA strategy something I can do on my own?

The mechanics are manageable, but the tax coordination is genuinely complex. You will need to get the cost basis documentation from your plan administrator — many people discover their plan has poor records, which is a problem worth solving before you retire. Your broker will need to receive the shares as an in-kind transfer and record the correct cost basis. A single mistake in the distribution process can disqualify the NUA treatment entirely. Work with a CPA and, if possible, a fee-only financial advisor who understands retirement plan distributions. The consultation fee is almost always worth it given how much money is on the table.

Frequently Asked Questions

Frequently Asked Questions

When should I claim Social Security to maximise my benefit?

The longer you delay claiming Social Security — up to age 70 — the higher your monthly benefit. Each year you wait past your full retirement age (66 or 67 depending on your birth year) adds roughly 8% to your benefit permanently. If you are in good health and have other income sources such as a pension or a taxable brokerage account from an NUA distribution, delaying to 70 is often the highest-value move you can make.

How much of my Social Security benefit is taxable?

Between 0% and 85% of your Social Security benefit can be subject to federal income tax, depending on your “combined income” — that is your adjusted gross income plus any tax-exempt interest plus half your Social Security benefit. If that combined figure exceeds $34,000 for single filers or $44,000 for married couples, up to 85% of your benefit is taxable. Keeping your other income low in retirement — for example through Roth conversions or careful withdrawal sequencing — can reduce how much of your benefit gets taxed.

What are the RMD rules for 2025 and 2026?

Under current law, Required Minimum Distributions must begin at age 73 for most retirement accounts including traditional IRAs and 401(k)s. The IRS calculates your annual RMD by dividing your account balance (as of December 31 of the prior year) by a life expectancy factor from IRS tables. Failing to take your full RMD triggers a 25% excise tax on the amount you should have withdrawn, so it is worth setting up automatic distributions if you have multiple accounts.

How do I avoid Medicare IRMAA surcharges?

IRMAA surcharges are triggered when your modified adjusted gross income — from two years prior — exceeds set thresholds (starting around $106,000 for single filers in 2025). You can reduce your exposure by spreading large withdrawals or Roth conversions across multiple years, using qualified charitable distributions (QCDs) from your IRA if you are over 70½, or appealing your IRMAA surcharge if you have had a qualifying life event such as retirement that significantly reduced your income. Timing an NUA distribution carefully is also key to avoiding an unexpected IRMAA jump.

What is the Medicare Part B premium for 2025?

The standard Medicare Part B premium for 2025 is $185.00 per month, up from $174.70 in 2024. However, higher earners pay more through IRMAA surcharges, with monthly premiums ranging from $259 to $628.90 depending on income. Most people have their Part B premium deducted directly from their Social Security benefit each month.