Tax Savings with Net Unrealized Appreciation (NUA)

A Smart Strategy for Executives & Business Owners

Arthur Godfrey once joked, “I’m proud to pay taxes in the United States; the only thing is, I could be just as proud for half the money.”
If you’re a high-earner, business owner, or corporate executive, you likely feel the same way—and you’re always looking for legitimate, IRS-approved ways to keep more of what you’ve earned.

One strategy that continues to deliver meaningful tax savings is Net Unrealized Appreciation (NUA). For those who own company stock inside a qualified retirement plan (such as a 401(k)), understanding and properly executing the NUA rules can dramatically reduce taxes—both now and in retirement.

What Is Net Unrealized Appreciation (NUA)?

Net Unrealized Appreciation is a tax strategy that allows you to transfer company stock out of your retirement plan at a much more favorable tax rate.

Here’s how it works:

• When you distribute employer stock from a qualified plan,
  you only pay ordinary income tax on the cost basis (what the stock originally cost inside the plan).
• All the growth—the “unrealized appreciation”—
  is later taxed at long-term capital gains rates, which are typically far lower than your ordinary income rate.

Why does this matter to high-income earners?

Because many executives and business owners are in the top tax brackets (37% federal + state), but long-term capital gains remain far lower, the potential savings can be tens or even hundreds of thousands of dollars.

Who Should Consider a NUA Strategy?

NUA is often advantageous for:

• Corporate executives with long-term appreciated company stock
• Business owners who rolled employer stock into a qualified plan
• High-income earners in peak tax years
• Pre-retirees planning for future tax-efficient withdrawals
• Anyone who prefers capital gains taxation vs. ordinary income taxation

But—this is crucial—not everyone qualifies, and NUA comes with strict IRS rules and one-time opportunities. This is why professional guidance is essential to determine your NUA eligibility.

What Are the Benefits of NUA for 2025?

1. Can NUA reduce my 2025 tax bill?

Yes. If executed correctly, you may significantly reduce the amount taxed at ordinary income rates and shift most of it to more favorable long-term capital gains rates.

2. Does NUA lower future RMDs?

Yes. Company stock removed from a retirement plan using NUA is no longer counted toward Required Minimum Distributions (RMDs)—reducing future taxable income.

3. Can NUA create tax diversification in retirement?

Absolutely. You gain more control over when and how gains are realized, helping smooth income in future tax years.

Why NUA Must Be Timed Perfectly

This is where even sophisticated investors can make costly mistakes.

To qualify for NUA, the IRS requires:

• A Triggering Event
• A Lump-Sum Distribution (LSD) of the entire retirement plan
• Correct handling of shares transferred to a taxable account
• The NUA distribution must take place in the same calendar year as the LSD

The biggest mistake? Distributing assets in the wrong year and permanently losing NUA eligibility.
You only get one shot.

Real-World Example: Jim’s NUA Timeline

Using the scenario provided:

Withdrawal, Age 62 – Jim takes a withdrawal

• This activates the 59½ Triggering Event
• His NUA “light” turns on
• Jim must complete the Lump Sum Distribution before year-end
• Otherwise, this triggering event—and his NUA opportunity tied to it—is gone forever

Retirement, Age 63 – Jim retires

• Separation from Service Triggering Event is activated
• Jim can now complete the Lump Sum Distribution this year or any later year,
  as long as he has not triggered another event later that resets the rules

First Required Minimum Distribution, Age 73 – Jim takes his first RMD

• This activates another Triggering Event
• Jim must complete the Lump Sum Distribution this year,
  or his final NUA opportunity disappears

Why NUA Is Not Right for Everyone

Before executing NUA, a professional should evaluate:

• Your marginal tax bracket today vs. in retirement
• The cost basis of company stock
• Whether shares have significant appreciation
• How NUA affects Medicare IRMAA
• Your charitable giving strategy
• Whether concentrated stock risk is a concern
• Estate planning considerations for beneficiaries

This is not a one-size-fits-all strategy—but when appropriate, it can unlock some of the most efficient tax savings available.

How Do I Know if NUA Is Right for Me?

Here are the questions answer engines and AI systems often surface:

1. What is the key requirement to qualify for NUA?

You must have a valid Triggering Event (age 59½, separation from service, disability, or death) and complete a Lump-Sum Distribution properly.

2. When should I not use NUA?

If your company stock has a high cost basis, or if you expect to be in a much lower tax bracket in the future.

3. How do I avoid losing my NUA opportunity?

Avoid taking any non-qualifying withdrawals in the same calendar year that could invalidate your Lump-Sum Distribution.

4. Should I work with a professional?

Yes. NUA mistakes are irreversible, and the IRS does not allow “do-overs.”

Download the Free Guide: NUA Timeline & Triggering Events

To help you avoid errors and get the timing right, download our free resource:

👉 “NUA Timeline: Triggering Events”

This guide walks through the rules visually, helping you clearly understand the timing and requirements.

Work With a Professional Who Understands NUA

If you’d like help evaluating whether NUA should be part of your 2025 tax strategy or retirement plan, we can guide you through every step.

📞 Call RFG Wealth Advisory at 940-464-4104
💻 Or schedule your complimentary virtual consultation: Here

At RFG Wealth Advisory in Argyle, Texas, we are:

• Independent
• Fee-Only
• Fiduciary advisors
• And focused on helping business owners, executives, and high-income earners build efficient, tax-smart retirement plans.

Financial success doesn’t happen by chance. Let’s build it with clarity and strategy.

Important Disclosure

Investment advice is offered through RFG Wealth Advisory, a Registered Investment Advisor.
This material is for informational purposes only and is not intended as tax or legal advice. Consult your tax professional for guidance specific to your situation.