Eileen Carrero photo

Eileen M. Carrero, CPA

Financial Advisor, CPA

 

Eileen Carrero Financial Services, LLC

Wealth Management, Tax & Accounting

4917 West 144th Place

Midlothian, IL 60445

 

Phone:  708-489-1035

Fax:      708-489-1036

 

Email: eileen.carrero@ceterafs.com

Website: www.myecfs.com

July/August 2025

Net Unrealized Appreciation and Your 401(k)

Smiling Senior Couple Sitting Around Table At Home Reviewing Finances

If your 401(k) plan account contains employer stock, the tax law's net unrealized appreciation (NUA) provision may allow you to take advantage of potentially lower tax rates on the growth or unrealized appreciation of the stock.


How It Works
Normally, distributions from a traditional 401(k) are taxed as ordinary income. Under the NUA provision, you can separate the appreciation of your employer stock from other assets in your 401(k) at retirement. When you eventually sell your stock, the NUA will be taxed at the generally lower long-term capital gains rate. You typically need to separate from your employer through retirement or other means and take a qualified lump-sum distribution of your entire plan balance to take advantage.


Here's an Example
Twenty years ago, Taylor received a $50,000 company stock 401(k) contribution. Today, upon her retirement, the stock is worth $200,000. Instead of rolling everything into an IRA, Taylor is taking a separate stock distribution. Ordinary income tax will be due only on the $50,000, while the $150,000 appreciation would be subject to capital gains tax when sold.*


Your trusted professional can help determine whether this fits your broader retirement and investment strategy.


*This is a hypothetical example and is not representative of any investment strategies. Actual results my vary.


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