How Mariner Wealth Advisors Approaches Net Unrealized Appreciation on Company Stock

The rollover form that quietly erases the tax break

Signing a direct rollover of your whole 401(k), company stock included, to an IRA ends the NUA option for those shares for good. An IRA has no NUA rule. Once the shares are inside it, every dollar you later withdraw is ordinary income.

Take the hypothetical example we'll follow below: $300,000 of stock with a $50,000 basis. Inside an IRA, all $300,000 is taxed at your withdrawal rate, not just the $50,000 basis.

Here's a practical detail. Rollover paperwork often defaults to 'all assets.' The in-kind stock distribution has to be requested separately, and the plan administrator may need a specific form for it.

The better order is simple. Request the employer shares in kind to a taxable brokerage account first. Then roll the cash and fund portion to an IRA within the same tax year.

What does net unrealized appreciation on company stock actually save?

In the example below, NUA saves $27,500 of tax: $68,500 through NUA versus $96,000 through a full rollover withdrawn at an assumed 32% rate. The saving depends mostly on the gap between your future ordinary rate and the 20% long-term rate.

Hypothetical: Natalie, 51, is CFO of a mid-cap industrial manufacturer. She's married to a part-time architect, has two teenagers, and is bound by a 5x-salary stock ownership guideline. She intends to retire at 55, when $300,000 of company stock is expected to sit in her 401(k) with a $50,000 cost basis.

With NUA, the $50,000 basis is ordinary income in the distribution year: $50,000 × 37% = $18,500. When she later sells, the $250,000 of NUA is taxed at 20%: $50,000. Total tax: $68,500. Rolling everything to an IRA and withdrawing at 32% costs $300,000 × 32% = $96,000.

Watch the rate row in the table. The saving shrinks to $3,500 if retirement withdrawals would be taxed at 24%, and it grows to $42,500 at 37%. The last row shows what happens if she leaves at 52 instead.

Where does the saving come from? It's the NUA amount times the rate gap ($250,000 × 12% = $30,000), minus the extra 5 points paid early on the basis ($50,000 × 5% = $2,500). That nets $27,500.

The assumptions are plain: no growth, state tax ignored, rates for illustration only.

Is it worth holding company stock in your 401(k) just to keep the NUA option?

Usually not, if the shares already make up a big slice of what you own. A sale of employer shares while they're still in the 401(k) costs no tax at all. A 30% price drop on $300,000, by contrast, costs $90,000, more than three times the $27,500 saving.

Natalie's case makes it concrete. About $1.3 million of her $3.2 million net worth is already employer stock, so the 401(k) shares add to a position that is already concentrated.

Mariner Wealth Advisors's evidence-based approach starts with that comparison. Before recommending that a client keep stock for a tax break, the team sets the expected saving next to a plausible drawdown on the same shares. When the drawdown is larger, diversification wins.

There's a middle path. NUA rules let a participant distribute some shares in kind and roll others, so Natalie could keep only the lowest-basis lots in the plan and sell the high-basis lots inside it now. The related topic of concentrated stock planning covers the wider question.

Where NUA helps and where it hurts

The two lists below sit side by side because the trade is real: you pay early to pay less later.

We would rather sell the shares over a planned schedule after the distribution than hold them for years, because the tax break is already locked in on day one.

• Pro: appreciation is taxed at long-term rates even if you sell the next day.
• Pro: no 10% penalty applies to the NUA portion.
• Pro: NUA shares are not subject to required minimum distributions.
• Pro: you control when the gain is realized.
• Con: tax on the basis is due in the distribution year, so money leaves tax deferral early.
• Con: the shares stay concentrated in a taxable account.
• Con: heirs get no step-up on the NUA portion.
• Con: one misstep in sequencing disqualifies the lump sum.

How do age and account size change the math?

Age decides whether the basis also carries the 10% penalty for early distributions. Separate from service before the calendar year of your 55th birthday and it applies. Separate at 55 or later, or take the distribution at 59½, and it does not. For Natalie, leaving at 52 adds $50,000 × 10% = $5,000, and the saving falls to $22,500.

Required minimum distributions start at 73, or at 75 for anyone born in 1960 or later, which is Natalie's cohort. An NUA distribution moves those shares out of the RMD calculation entirely.

Small or high-basis positions often don't pay. If the NUA amount is only around $30,000, or the basis exceeds roughly half the value, the paperwork and the early tax on the basis often outweigh the saving.

Large balances bring another problem. A big basis lands as ordinary income in one year. That can push total income into the 37% bracket, which for 2026 starts above $640,600 for single filers and $768,700 for joint filers, per the IRS. It can also raise Medicare premiums two years later through IRMAA.

Myths about NUA and what the tax code says

Myth: NUA always beats a rollover. In fact, at a 24% retirement rate the example saves only $3,500, which may not justify paying $18,500 years early.

Myth: you must hold the shares a year after distribution to get long-term rates. The NUA portion is long-term immediately. Only growth after the distribution date needs the more-than-one-year hold.

Myth: heirs inherit NUA shares with a stepped-up basis. The NUA portion gets no step-up, and heirs pay long-term gains tax on it. Only post-distribution growth can step up.

Myth: it only works after 59½. Separation from service at any age is a trigger. Age decides whether the 10% penalty applies to the basis.

Mistakes that disqualify or shrink the break

The costliest error is the opening one: rolling the entire 401(k) to an IRA before requesting the shares. In the hypothetical, that permanently turns a $68,500 tax bill into roughly $96,000 at a 32% rate, a $27,500 loss.

Four others are quieter.

• Partial withdrawal in an earlier year: taking one after leaving can spoil the lump sum tied to that trigger. A later trigger, such as reaching 59½, may reopen it, but that can mean years of waiting.
• Missing a second plan: an old profit-sharing plan at the same employer means the balance wasn't fully distributed within the tax year, and NUA treatment fails.
• Selling post-distribution gains within a year: that growth becomes short-term gain taxed at ordinary rates.
• No lot-level basis: some plans average the basis across all purchases, and per-lot figures show which shares are worth distributing in kind.

What to do this week, and what to ask before you sign

Get the employer stock's cost basis by lot from your plan's administrator or recordkeeper. Confirm the plan allows in-kind distribution. List every 401(k)-type plan you have at the employer. And hold off on returning any rollover form.

The decision rule: estimate the NUA saving at your likely retirement tax rate. If a 30% drop in the shares would cost more than that saving, sell the extra company stock inside the 401(k), where the sale is tax-free, and keep only the lowest-basis lots for an in-kind distribution.

Honest limits: NUA rarely pays when the basis is above roughly half the shares' value, when retirement income will sit in a low bracket, or when you'd hold a concentrated position for years just to use it. State tax can change the result, and this page doesn't cover it.

Mariner Wealth Advisors advisors model both paths in dollars before a client signs anything, and they work with clients nationwide by video and phone. Investing involves risk, including loss of principal. If a rollover packet is on your desk, use the request form and we'll look at it with you.

• What is my NUA saving at my likely retirement tax rate?
• Which lots should come out in kind and which should be sold inside the plan?
• How will the basis income affect my bracket and Medicare premiums?
• What is the selling schedule for the shares once they are in a taxable account?