Net unrealized appreciation

Net Unrealized Appreciation (NUA) is the difference in value between the amount that was paid for employer stock within your employer’s qualified retirement plan (the cost basis) and the value of that stock when it is being distributed to you as part of a lump-sum distribution. This NUA may be important to you because there is a special tax treatment available for in-kind distributions of employee stock as part of a lump-sum distribution from your employer’s qualified retirement plan.

Additional benefits of NUA

  • If you die without selling the stock, your heirs get a step-up in basis that eliminates the capital gains on any appreciation between the day of the original distribution and the day of your death ($500,000 in the example). They still have to pay long-term capital gains tax on the original NUA amount ($400,000 in the example).
  • Since the employer stock is not rolled into your IRA or a new employer’s qualified retirement plan, the value is not subject to required minimum distributions when you reach age 72. You can control when to pay income taxes on the NUA portion.
  • If you have charitable interests, you can avoid capital gains taxes on the NUA by gifting shares directly to a charity or to a charitable remainder trust. This may also provide you with a tax deduction and lower the value of your estate.

How we can help you

Your qualified employer-sponsored retirement plan may be the largest piece of your retirement income. How you handle this money at retirement can have a serious and long-term impact on your future. Your RBC Wealth Management financial advisor can work closely with you and your tax advisor to help you determine if a lump sum distribution from your qualified retirement plan is right for your specific situation. 

To learn more or to set up a consultation, please contact us today. 

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