Net unrealized appreciation calculator: NUA tax treatment, 401(k) rules and the cost basis election.
Enter the plan cost basis and what the employer stock is worth. This prices the ordinary income tax the NUA election costs you now, taxes the appreciation at long-term rates when you sell, and puts the total next to what rolling the whole balance into an IRA would cost instead.
The election turns on one number: what fraction of the position is plan cost basis. Everything else is arithmetic, and most calculators skip the two parts that decide the answer.
Net unrealized appreciation calculator
The employer stock leaving the plan
At age the 10% additional tax applies to the basis you pull into income, adding . The separation-from-service exception starts in the year you reach 55.
Selling the shares later
| Route | Tax now | Tax at sale | Total |
|---|---|---|---|
| NUA election Shares out in kind | |||
| Roll it all to an IRA Ordinary income on the way out | $0 |
On these numbers the NUA election saves against rolling everything to an IRA, because a basis ratio of buys long-term treatment on of appreciation.
On these numbers the election costs more than the rollover. A basis ratio of is too high here: you would pay ordinary rates today on a large slice to protect a small one.
Federal only, and the IRA column assumes you withdraw the whole balance at the rate you entered. Add your state rate. The 10% additional tax is applied when the age entered is under 55, on the assumption the distribution follows separation from service, which is how most NUA distributions arise. Educational information, not tax advice.
In short
Net unrealized appreciation is the growth your employer's stock accumulated while it sat inside your 401(k). IRS Publication 575 defines it as "the net increase in the securities' value while they were in the trust." If you take the shares out in kind as part of a qualifying lump-sum distribution, section 402(e)(4)(B) of the Internal Revenue Code says that appreciation is "excluded from gross income" in the year of the distribution. You pay ordinary income tax only on the plan cost basis, and the NUA is taxed later, at long-term capital gains rates, when you sell the shares. Roll the same balance into an IRA instead and every dollar of it eventually comes out as ordinary income. The election is worth doing when the plan cost basis is small relative to the market value, and it stops being worth doing as that ratio climbs.
Last updated September 2026
NUA tax treatment
What net unrealized appreciation actually does to your tax bill
Company stock inside a 401(k) has two numbers attached to it. The first is what the plan paid for the shares, the plan cost basis. The second is what they are worth today. The difference between them is the net unrealized appreciation, and the whole strategy exists because the tax code lets you split those two numbers apart and tax them differently.
Section 402(e)(4)(B) is the operative sentence. In the case of a lump sum distribution that includes employer securities, "there shall be excluded from gross income the net unrealized appreciation attributable to that part of the distribution which consists of securities of the employer corporation." Publication 575 restates it for the reader: the NUA reported in box 6 of your Form 1099-R "is generally tax free until you sell or exchange the securities."
So the bill splits. The plan cost basis is ordinary income the year the shares come out, at whatever bracket your other income puts you in. The appreciation waits, and when you eventually sell it is taxed at 0%, 15% or 20% depending on your income that year, plus the 3.8% net investment income tax if you are over the threshold. Publication 575 summarizes the mechanic in one line: "employer stock basis is taxed as ordinary income and appreciation is taxed later at capital gains rates."
| What happens | NUA election | Full IRA rollover |
|---|---|---|
| Taxed in the distribution year | The plan cost basis only, as ordinary income | Nothing |
| Rate on the appreciation | Long-term capital gains, 0% to 20%, plus NIIT | Ordinary income, up to 37% |
| When you control the timing | Whenever you choose to sell, in any size | Withdrawals, and required minimum distributions |
| 10% additional tax | Applies to the basis if no exception fits | Not triggered by the rollover itself |
| Losses usable against it | Yes, capital losses offset the gain | No, capital losses do not offset IRA withdrawals |
| What heirs get | Step up on post-distribution gain only | No step up, inherited IRA rules apply |
The fifth row is the one people miss and the reason this site cares about the strategy. Once the shares are in a taxable brokerage account, capital losses anywhere else in your portfolio can be used against the gain when you sell. Money inside an IRA has no such relationship with your taxable accounts. A harvested loss cannot touch an IRA withdrawal. That changes what the position is worth to you and it changes what you should build around it, which is the subject of the tax loss harvesting side of this site.
NUA rules
What is a net unrealized appreciation triggering event
NUA treatment is not something you elect on a whim. The distribution has to be a lump-sum distribution, and section 402(e)(4)(D)(i) defines that term narrowly: "the distribution or payment within one taxable year of the recipient of the balance to the credit of an employee which becomes payable to the recipient" on one of four occasions.
"On account of the employee's death." The beneficiary can make the election.
"After the employee attains age 59 1/2." This one does not require leaving the job.
"On account of the employee's separation from service." The common one: retiring, quitting, being laid off.
"After the employee has become disabled." Publication 575 limits this trigger to self-employed individuals who become totally and permanently disabled.
Three conditions attach to all four. The account has to be emptied inside a single tax year, and Publication 575 is specific that a lump-sum distribution means the entire balance "from all of the employer's qualified plans of one kind (pension, profit-sharing, or stock bonus plans)." The employer securities have to come out in kind, as shares moved to a taxable brokerage account, not sold inside the plan and sent out as cash. And the qualifying event has to be a new one: if you took a distribution after a previous triggering event and did not use it, the clock generally has to restart.
What counts as employer stock is defined more broadly than most people expect. Treasury Regulation 1.402(a)-1(b)(1)(ii) says "the term 'securities' means only shares of stock and bonds or debentures issued by a corporation with interest coupons or in registered form, and the term 'securities of the employer corporation' includes securities of a parent or subsidiary corporation." Publication 575 adds the same list: "stocks, bonds, registered debentures, and debentures with interest coupons attached."
There is one rule almost nobody writes about, and it protects you rather than trapping you. Section 402(j) says that if the plan trustee "disposes of securities of the employer corporation and uses the proceeds of such disposition to acquire securities of the employer corporation within 90 days," the "determination of net unrealized appreciation shall be made without regard to such transaction." Ordinary trading activity inside the plan does not reset your NUA.
Finally, the withholding. Publication 575 notes that for these distributions "mandatory 20% withholding applies unless a rollover occurs." That withholding attaches to the taxable amount, which is the cost basis, and if the plan pays it from your other assets rather than from the shares you need cash on hand to cover it. Plan for that before you sign the paperwork, because selling shares to pay the withholding starts a taxable transaction you may not have wanted yet.
NUA tax strategy
When does net unrealized appreciation make sense
The answer is a ratio, not a rule of thumb about company size or account balance. Divide the plan cost basis by the market value. That fraction is the part of the position you are agreeing to tax at ordinary rates today in exchange for taxing the rest at capital gains rates later. The smaller it is, the better the trade.
| Basis ratio | Typical read | What decides it |
|---|---|---|
| Under 15% | Strongly favorable | Almost the whole position converts to long-term treatment for a small ordinary-rate payment. |
| 15% to 25% | Usually favorable | Still a wide rate spread, but the timing of the sale starts to matter. |
| 25% to 40% | Genuinely close | Depends on your bracket now against your bracket later, and on how soon you sell. |
| Over 40% | Usually not worth it | You pay ordinary rates on a large slice to protect a shrinking one. The rollover normally wins. |
Three other factors move the line. Your age is the first: under 55, the 10% additional tax lands on the basis and can wipe out the benefit outright, which is why the calculator above applies it. Your bracket in the distribution year is the second, and it is often the one thing you can control, because a person who retires in June has half a year of salary and a person who retires in December has all of it. Pushing the distribution into the following calendar year can move the basis into a much lower bracket.
The third is how long you intend to hold. NUA defers a tax; it does not cancel one. If you plan to sell the whole block within a year of the distribution, the comparison is close to a straight rate contest between your ordinary bracket and your capital gains bracket. If you plan to hold for a decade, the deferral itself is worth real money, and you also get the flexibility of selling in pieces across tax years, which an IRA withdrawal schedule does not give you.
Net unrealized appreciation cost basis
Does NUA qualify for long term capital gains
Yes, and the holding period is irrelevant for that slice. This is the single most useful and least understood feature of the strategy. Treasury Regulation 1.402(a)-1(b)(1)(i) says the excluded appreciation "shall be considered as a gain from the sale or exchange of a capital asset held for more than six months to the extent that such appreciation is realized in a subsequent taxable transaction."
The "six months" in that sentence is a fossil. It was the threshold for long-term treatment before the holding period was lengthened to one year, and the regulation text was never updated. The operative meaning has not changed: the NUA is long-term when you realize it, whether you sell the shares a decade after the distribution or the following week.
The same regulation sets your basis. It says the excluded appreciation "shall not be included in the basis of the securities in the hands of the distributee at the time of distribution for purposes of determining gain or loss on their subsequent disposition." In plain terms, your cost basis in the shares is the plan cost basis you already paid ordinary tax on, not the market value on the day they came out.
Then comes the second clock, which is where careless calculators go wrong. Anything the stock gains after the distribution is a separate slice with its own holding period. The regulation says so directly: if the gain you realize "exceeds the amount of the net unrealized appreciation at the time of distribution, such excess shall constitute a long-term or short-term capital gain depending upon the holding period of the securities in the hands of the distributee."
A worked example
Plan cost basis $90,000. Market value the day the shares are distributed, $600,000. You sell eight months later for $690,000. The first $510,000 of gain is the NUA and it is long-term, even though you held the shares for eight months. The remaining $90,000 arose after the distribution, you held it for eight months, so it is short-term and taxed at your ordinary rate. Wait four more months and that second slice becomes long-term too. The calculator at the top of this page splits the two automatically when you change the months-held field.
One more consequence, on the inheritance side. The NUA portion is income in respect of a decedent, so it does not receive a step up in basis at death. Heirs take the shares with the deferred tax still attached and pay long-term capital gains on the NUA when they sell. Post-distribution appreciation does get the usual step up. That asymmetry is worth knowing before anyone treats a large NUA position as an estate-planning asset, and it is covered in more depth on the cost basis calculator, which handles inherited and gifted stock rules alongside the ordinary lot methods.
Net unrealized appreciation company stock
The day after the distribution you have a concentration problem
The tax work is the easy part. What the election leaves you with is a large, low-basis holding in one company, sitting in a taxable account, usually the same company that paid your salary for twenty years. The tax planning worked. The portfolio is now badly built.
Selling it all at once undoes the point of the exercise, because a single sale realizes the entire NUA in one tax year and pushes a chunk of it into the 20% bracket plus the 3.8% net investment income tax. Selling nothing leaves you with the concentration risk that made you look at the strategy in the first place. The workable answer is almost always somewhere in between, and it depends on how much of your net worth the position represents.
There are three routes people actually take. Sell in planned tranches across tax years, keeping each year's realized gain inside the 15% band where possible, which the capital gains tax calculator will size for you. Build a diversified portfolio around the holding and harvest losses in it deliberately, so that when you do sell tranches of company stock there are realized losses waiting to absorb the gain, which is the argument for direct indexing rather than an index fund. Or, above roughly a million dollars and with qualified purchaser status, contribute the shares to an exchange fund and accept a seven-year lock-up in return for diversification without a sale.
The second route is the one most people can use, and it is the reason the fifth row of the comparison table above matters so much. A dollar of harvested loss is worthless against an IRA withdrawal and directly valuable against an NUA sale. Once the shares are in a taxable account, every loss you can realize elsewhere in your portfolio becomes ammunition for selling company stock cheaply. Which platform makes that practical at your account size is the subject of the platform comparison, and the tradeoffs for a single large holding are worked through in the guide to direct indexing around a concentrated stock position.
If the company stock arrived through vesting rather than a plan match, the same reader usually has restricted stock units in the mix as well, and the RSU tax calculator prices what each vest costs at your real bracket before you decide how much of the total position to keep.
Net unrealized appreciation
Questions people actually ask about NUA
How is net unrealized appreciation taxed?
It is taxed in two pieces at two different rates. The plan cost basis of the shares is ordinary income in the year of the distribution, taxed at your regular bracket and reported on Form 1099-R. The net unrealized appreciation, the growth that happened inside the plan, is not taxed at all until you sell, and when you do sell it is taxed at long-term capital gains rates no matter how long you personally held the shares.
How to calculate net unrealized appreciation
Net unrealized appreciation is the market value of the employer securities on the date they leave the plan minus the plan cost basis of those shares. Publication 575 puts it plainly: the NUA "is the net increase in the securities' value while they were in the trust." Your plan administrator reports the cost basis figure, and the NUA lands in box 6 of your Form 1099-R.
When does net unrealized appreciation make sense?
When the plan cost basis is small relative to the market value. The election costs you ordinary income tax today on the basis in order to convert the rest into long-term capital gain. At a basis of 15% of value the trade is usually strongly favorable; above roughly 35% to 40% it often is not, because you are paying ordinary rates now for a benefit spread over a slice that has shrunk. The calculator on this page prices your actual ratio.
What is a net unrealized appreciation triggering event?
The distribution has to be a lump-sum distribution, which section 402(e)(4)(D)(i) of the Internal Revenue Code defines as the payment "within one taxable year" of the entire balance of the account, payable on account of the employee's death, after the employee attains age 59 1/2, on account of separation from service, or after the employee has become disabled. No qualifying event, no NUA treatment.
Does net unrealized appreciation get a step up in basis?
No, not the NUA portion. Net unrealized appreciation is treated as income in respect of a decedent, so heirs inherit it with the tax still attached and owe long-term capital gains on it when they sell. Any appreciation that happened after the shares left the plan does receive the ordinary step up to date-of-death value. This is one of the most commonly misstated points about the strategy.
How to report net unrealized appreciation
The plan reports the taxable cost basis in box 2a and the NUA in box 6 of Form 1099-R for the distribution year. You pay ordinary income tax on the box 2a amount that year. Nothing is reported for the NUA until you sell the shares, at which point the sale goes on Form 8949 and Schedule D with the plan cost basis as your basis and the NUA portion of the gain treated as long-term.
Does NUA qualify for long term capital gains?
Yes, and the holding period does not matter for the NUA slice. Treasury Regulation 1.402(a)-1(b)(1)(i) says the excluded appreciation "shall be considered as a gain from the sale or exchange of a capital asset held for more than six months to the extent that such appreciation is realized in a subsequent taxable transaction." You could sell the shares the week after the distribution and the NUA is still long-term.
Can you do net unrealized appreciation with an ESOP?
Yes. An ESOP is a stock bonus plan, which is one of the qualified plan types the rules cover, and ESOP distributions are a common source of NUA. The same conditions apply: the distribution has to empty the account within one tax year, it has to follow a qualifying event, and the shares have to come out in kind rather than being sold inside the plan first.
Build the portfolio the company stock is supposed to become
Design the allocation you actually want as a weighted index, hold the employer position inside it while you unwind, and let the rebalancing rules tell you how much to sell each year.
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