NUA Calculator: Is the Employer Stock Strategy Worth It?
If you hold highly appreciated employer stock in your 401(k), the Net Unrealized Appreciation (NUA) strategy under IRC § 402(e)(4) can convert a large gain from ordinary income rates to long-term capital gains rates — permanently. This calculator shows whether the tax savings outweigh the benefit of continued IRA deferral.
How NUA works: Instead of rolling employer stock to an IRA, you take it in-kind to a taxable brokerage account. You pay ordinary income tax on the cost basis only at distribution. When you sell, the NUA gain is taxed at long-term capital gains rates — not ordinary income — regardless of how long you held the shares inside the plan.
What the calculator assumes (and doesn't model)
- Lump-sum requirement: NUA treatment requires distributing your entire balance from all plans of the same employer in a single tax year. The non-stock portion is typically rolled to an IRA; this calculator models only the employer stock tranche.
- Triggering events: Separation from service (including retirement), reaching 59½, death, or disability. Most people use this at job change or retirement.
- Sell timing: This calculator assumes you sell immediately after distribution — worst-case for NUA. Every year you hold the stock in taxable before selling shifts the comparison further in NUA's favor.
- State taxes on capital gains: Most states tax capital gains as ordinary income. If your state has a preferential LTCG rate, lower your state rate input accordingly.
- NIIT (3.8%): Applies to NUA gain if MAGI exceeds $200,000 (single) or $250,000 (married filing jointly). Rate confirmed at 3.8% for 2026 per IRS Topic 559.
- 10% early withdrawal penalty: Lump-sum distributions before 59½ may trigger a 10% penalty on the cost basis (not the NUA gain). The age-55 rule exception applies here. Confirm triggering event timing with your plan administrator.
- Cherry-picking shares: Per IRS Notice 98-24, you may distribute only the most appreciated shares in-kind and roll the rest — this can substantially improve NUA economics over the default scenario.
When NUA typically wins
- Very low cost basis relative to market value — basis under 20% of market value is the sweet spot. The lower the basis, the less ordinary income tax you owe at distribution.
- Short IRA deferral horizon — if you'll need the money within 5 years, the compounding benefit of deferral is small and NUA's LTCG advantage dominates.
- Wide spread between ordinary and LTCG rates — a 37% ordinary rate with 20% LTCG gives a 17-point spread to capture.
- Backdoor Roth plans — rolling pre-tax 401(k) money to a traditional IRA triggers the pro-rata rule and taints the backdoor Roth. NUA lets you move highly appreciated stock to taxable without adding pre-tax IRA basis.
When IRA rollover typically wins
- High cost basis — if basis is 60%+ of market value, the ordinary income tax hit at distribution eats much of the LTCG advantage.
- Long deferral horizon + high LTCG + NIIT — decades of compounding on a large deferred tax can exceed the rate-differential savings, especially when NIIT applies.
- Low ordinary income rate already — if you're in a low bracket at retirement, the spread between ordinary and LTCG rates narrows, reducing NUA's edge.
Related tools
- 401(k) Rollover Decision Calculator — model fee differences across leave-in, IRA, and new-plan rollover paths
- Complete 401(k) Rollover Guide — deep-dive on NUA, age-55 rule, backdoor Roth, and more
- Match with a 401(k) rollover specialist
Get a specialist to model your actual NUA scenario
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