NUA Election Calculator (2026)

If your pension or 401(k) holds employer company stock with substantial appreciation, you may qualify for Net Unrealized Appreciation (NUA) treatment under IRC §402(e)(4). Instead of rolling the stock to an IRA and paying ordinary income rates (up to 37%) on everything when withdrawn, you take the stock in-kind and pay ordinary income only on the plan's cost basis — the NUA is then taxed at long-term capital gains rates (0–20%) when you sell.

What is NUA and when does it apply?

Net Unrealized Appreciation is the difference between what the plan paid for employer stock (the plan's cost basis) and the stock's fair market value at the time of distribution. This built-in gain receives a special tax break under IRC §402(e)(4): instead of all of it being taxed as ordinary income inside an IRA, the NUA is taxed at long-term capital gains rates — which top out at 20%, versus 37% for ordinary income.

Eligibility requirements

NUA treatment requires a lump-sum distribution — the entire account balance must be distributed in a single tax year. The distribution must be triggered by one of these qualifying events:

• Separation from service (retirement, layoff, or other job separation)
• Reaching age 59½
• Death
• Disability (for self-employed participants)

The employer stock must be distributed in-kind — transferred as shares to a taxable brokerage account, not sold first. Only the stock portion receives NUA treatment; cash and other assets in the plan are rolled to an IRA.

The three-way tax split

When you elect NUA treatment on an employer stock distribution, your tax bill splits into three components:

1. Cost basis — ordinary income, taxed now. The plan's cost basis is added to your ordinary income in the year of distribution, just like a cash distribution.
2. NUA — LTCG, taxed when you sell. The appreciation from the plan's purchase price to the distribution date FMV is locked in as a long-term capital gain, regardless of how long you hold the shares after distribution.
3. Post-distribution appreciation — short or long-term, taxed when you sell. Any additional gain from distribution date to sale date is short-term if sold within 12 months of distribution, long-term if held longer.

When NUA is most valuable

The NUA election is most advantageous when:

• The NUA percentage is high. If the stock has appreciated 5× from the plan's cost basis, 80% of the distribution is taxed at LTCG rates instead of ordinary income rates. If the stock has barely moved, the savings are minimal.
• You're in a high ordinary income bracket. If your marginal rate is 32–37%, the difference between ordinary rates and 15–20% LTCG is 12–17 percentage points per dollar of NUA. On $400,000 of NUA, that's $48,000–$68,000 in savings.
• You plan to sell relatively soon. If you roll to an IRA instead and expect to take distributions over 20+ years in a low bracket (e.g., 12%), the LTCG rate advantage shrinks. NUA is more compelling if you'll sell within a few years of distribution.
• The PBGC cap matters. For large corporate pensions, if your lump sum exceeds the PBGC guarantee, NUA treatment on the stock component can be a tax-efficient way to receive that excess. See the PBGC guarantee guide.

When NUA is not worth it

• Low NUA percentage (under ~30%). If most of the stock value is plan cost basis, you'll owe substantial ordinary income tax now with limited LTCG benefit.
• High NIIT exposure. If your income is well above the NIIT threshold ($200K single / $250K MFJ), the 3.8% NIIT on top of 20% LTCG shrinks the advantage.
• You expect low income in retirement. If you project falling into the 12% ordinary income bracket in retirement, rolling to an IRA and withdrawing gradually may cost less than electing NUA and paying 15% LTCG today. The break-even depends on your expected marginal rate in retirement vs. current LTCG rate — a fee-only advisor can model this.
• State taxes offset the benefit. Some states don't recognize the LTCG preference — they tax capital gains at the same rate as ordinary income. Check your state's LTCG rules before electing NUA.

The mechanics: how to execute an NUA distribution

1. Request a lump-sum in-kind distribution of the employer stock shares to a taxable brokerage account. The remaining plan assets (cash, mutual funds) roll over to a traditional IRA to avoid triggering immediate ordinary income on those.
2. The plan must transfer shares directly. Do not request a sale of the shares — once liquidated inside the plan, NUA treatment is lost. The Form 1099-R will show the FMV in Box 1, the cost basis in Box 6 (net unrealized appreciation in employer's securities).
3. Report on your tax return. The cost basis (Box 6 of the 1099-R) flows to ordinary income for the distribution year. When you sell the shares, the NUA portion reports on Schedule D as long-term capital gain.
4. Consider the timing. If you're near year-end and have high other income, it may be worth waiting until January to distribute, so the cost basis falls in the following tax year at a potentially lower rate.