What is the Net Unrealized Appreciation Strategy

Building wealth takes time, effort, and careful planning. Once you’ve created that wealth, protecting it becomes just as important. If you have employer stock in a retirement plan, you might benefit from a tax-saving approach called the Net Unrealized Appreciation (NUA) strategy. At Gudorf Law Group, LLC, we help clients understand how strategies like this can maximize their retirement savings, ensuring a secure and bright future.

What Is Net Unrealized Appreciation?

Net Unrealized Appreciation refers to how much your employer stock has grown in value since you got it. If you have employer stock in your retirement account and its value has increased, the NUA strategy can help you lower taxes when you take it out. This can mean more money for you during retirement or for your heirs later on.

How Does the NUA Strategy Work?

If you leave your job or retire, you may be able to take an in-kind distribution of employer stock from your retirement account. Instead of rolling that stock into an IRA, where withdrawals are taxed as regular income, you can transfer it to a taxable brokerage account. The good news is that only the original purchase price (the cost basis) gets taxed as regular income. Any increase in value is taxed later at a lower capital gains rate when you sell the stock.

This strategy can save you a lot on taxes compared to rolling the stock into an IRA. Our skilled tax professionals at Gudorf Law Group can guide you through the retirement distribution planning process to make sure everything is done correctly and you get the most tax benefits.

Why Use the NUA Strategy?

The NUA strategy isn’t for everyone, but if you’ve worked at a company for many years and have stock that’s grown a lot in value, it could help you save on taxes. By paying lower long-term capital gains tax instead of higher ordinary income tax, you get to keep more of your money.

It’s important to know that the stock must come directly from your employer’s retirement plan. Once it’s rolled into an IRA, you can’t use the NUA strategy anymore. That’s why it’s smart to talk to a knowledgeable tax advisor before making a decision.

Tax Benefits of the NUA Strategy

Imagine your employer stock has grown in value over the years. If you roll that stock into an IRA and take money out later, you’ll pay regular income tax on the whole amount. With the NUA strategy, you only pay regular income tax on what you originally paid for the stock. When you sell it later, you pay a lower tax rate on the gain.

Gudorf Law Group’s skilled tax professionals can help you decide if this approach makes sense for your situation. We’ll make sure you follow the Net Unrealized Appreciation rules and avoid any costly mistakes.

Estate Planning Benefits of the NUA Strategy

The NUA strategy isn’t just about saving on income taxes—it can also help with estate planning. If you leave your appreciated stock to your heirs, they’ll only owe capital gains tax on the original increase in value. Any further gains after you pass away can get a step-up in basis, meaning your heirs may not owe tax on that part.

This strategy can also make charitable giving easier. Unlike IRA assets, which can lead to high taxes when used for donations, employer stock held in a brokerage account can be donated without triggering taxes right away. Our estate planning team at Gudorf Law Group can help you include the NUA strategy in your overall plan.

Things to Think About Before Using the NUA Strategy

While the Net Unrealized Appreciation strategy can offer big tax savings, it’s not always simple. First, make sure you won’t face a 10% early withdrawal penalty on the distribution. Also, you need enough money to pay the tax on the stock’s original cost when you take it out.

This decision shouldn’t be made lightly. It requires careful planning and a good understanding of your finances. Gudorf Law Group’s advisors can help you figure out if the NUA strategy is right for you. We stay up-to-date on tax laws and offer personalized advice to help our clients make the best choices.

Contact Gudorf Law Group Today for Your Customized, Tax Smart Retirement Strategy

Taxes can be complicated, and a wrong step could cost you a lot. That’s why it’s important to work with experienced professionals who know how to apply strategies like Net Unrealized Appreciation. At Gudorf Law Group, we offer clear and thoughtful guidance to help you protect your wealth.

Contact Gudorf Law Group today to learn more about how the NUA strategy can benefit you. Our team is ready to help you secure the financial future you’ve worked so hard to build.