Revisiting Net Unrealized Appreciation: A Tax-Wise Strategy That May Realize More Benefits Than Ever

Nersesian, John A.; Potter, Frances L.
February 2004
Journal of Financial Planning;Feb2004, Vol. 17 Issue 2, p50
Academic Journal
The tax strategy of taking employer stock out of the employer's retirement plan and paying taxes on it instead of rolling it over to an individual retirement account makes increased sense in light of tax law changes and the long-term runup of stock values in the U.S. The tax strategy of net unrealized appreciation (NUA) is a more practical option because of the lower capital gains rates, the increased use of company stock in defined contribution plans, and the long-term gains of the stock market. An important factor in deciding whether to use NUA for employer stock is the future plan for the assets. The NUA on shares purchased with after-tax employee contributions is also eligible for the NUA strategy. Individuals who plan to use the NUA strategy must notify their plan administration in advance to obtain the specific documentation required. Factors affecting decisions about NUA include: size of retirement account, time horizon, marginal tax benefit, risk tolerance, estate plan and diversification. Choosing to focus NUA educational efforts on these individuals should prove to be most beneficial: retiring corporate executives, younger executives, executives holding depressed stock and human resource executives.


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