Net Unrealized Appreciation (NUA): Don’t Pay More Taxes Than You Need To

Net Unrealized Appreciation (NUA) Don’t Pay More Taxes Than You Need To, James LangeSome employees have Stock Options, or the option to buy the stock of the company that they work for within their retirement plans. A unanimous Supreme Court decision in 2014 might discourage employers from offering their employees a stake in the business in future years, because they can now be held liable if the value of the stock drops. Employers can now also be held liable under insider trading laws for certain actions they make within the retirement plan, with respects to company stock.

But what if you do happen to have some company stock in your retirement plan? If you do, be sure to read Chapter 9 for some very important tax planning tips! When you retire and take a lump sum distribution from your retirement plan, the distribution may include employer stock that is (hopefully) worth more than the fair market value at the time it was purchased in your plan. The difference between the value of the company stock at the time you take your lump sum distribution and its value at the time it was purchased is called Net Unrealized Appreciation (NUA).

If you own company stock within your retirement plans, you should make sure that you understand Net Unrealized Appreciation (NUA) rules outlined in Chapter 9 before you roll over or take distributions from the plan. Many financial advisors don’t understand these rules and, if you don’t, you could end up paying significantly more in taxes than you need to. This is especially true if the company stock in your 401(k) has increased in value!

Stay tuned for an update on our classic case study of Eddie & Emily from Chapter 10!

– Jim

Jim Lange A nationally recognized IRA, Roth IRA conversion, and 401(k) expert, he is a regular speaker to both consumers and professional organizations. Jim is the creator of the Lange Cascading Beneficiary Plan™, a benchmark in retirement planning with the flexibility and control it offers the surviving spouse, and the founder of The Roth IRA Institute, created to train and educate financial advisors.

Jim’s strategies have been endorsed by The Wall Street Journal (33 times), Newsweek, Money Magazine, Smart Money, Reader’s Digest, Bottom Line, and Kiplinger’s. His articles have appeared in Bottom Line, Trusts and Estates Magazine, Financial Planning, The Tax Adviser, Journal of Retirement Planning, and The Pennsylvania Lawyer magazine.

Jim is the best-selling author of Retire Secure! (Wiley, 2006 and 2009), endorsed by Charles Schwab, Larry King, Ed Slott, Jane Bryant Quinn, Roger Ibbotson and The Roth Revolution, Pay Taxes Once and Never Again endorsed by Ed Slott, Natalie Choate and Bob Keebler.

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