NUA – Net Unrealized Appreciation

If you have company stock in your company savings plan, when you retire or otherwise leave the company, you should be able to elect to receive the stock in shares or in cash. In either case, there will be some tax consequence. If you elect to receive the value of the stock as shares, you will have an income tax liability in the year in which you receive the stock for the average original cost of the stock. When you later sell the stock, it will be taxed as capital gains on the difference between the original cost of the stock and the price at which it is sold, which is termed net unrealized appreciation.

Example: In working for XYZ Company, you have accumulated 100 shares of XYZ stock. Over the years, the price of the stock has risen from $15 a share to $100. The average price paid for the stock was $40 a share. On retirement, you elect to receive the stock as shares. The current value of the stock is $10,000. The average cost basis for the 1000 shares is $4,000, which will count as income for tax purposes for the current year. If the entire 100 shares of stock is sold, the net unrealized appreciation is $6,000 which would be taxed at the much lower capital gains tax rate.

The company stock in your savings plan may be grouped in multiple categories, depending on when it was purchased, how it was purchased and the rules that applied at the time of purchase. When you leave the company, the IRS net unrealized appreciation rules will apply to all of the stock, regardless of how it is categorized in your savings plan.

Disclaimer – I am not a financial adviser or specialist in financial matters. The material in this post is based on what I have learned in my own situation. The financial situations of others will differ. I recommend consulting with a financial adviser. More information may be found on line by searching on “net unrealized appreciation.”

finance, retirement

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