Net Unrealized Appreciation (NUA) Calculator  

Tax strategy for company stock held in an employer-sponsored plan

Individuals who own highly appreciated company stock in their employer-sponsored retirement plan may be eligible for a strategy called net unrealized appreciation (NUA). This strategy may offer significant tax savings on those assets. Before rolling assets out of an employer-sponsored retirement plan, investors may want to explore NUA as an alternative to rolling company stock over to an IRA along with their other plan assets.

Use this calculator to compare the potential tax implications of an NUA strategy to an IRA rollover.



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Compare a NUA strategy to an IRA rollover

Assumptions

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What this calculator does:

  • Compares a taxable account transfer with NUA to an IRA rollover.
  • Prints a report showing potential NUA results and the assumptions for easy reference.
Before deciding whether to retain assets in a retirement plan account through a former employer, roll them over to a qualified retirement plan account through a new employer (if one is available and rollovers are permitted), or roll them over to an IRA, an investor should consider all his or her options and the various factors including, but not limited to, the differences in investment options, fees and expenses, services, the exceptions to the early withdrawal penalties, protection from creditors and legal judgments, required minimum distributions, the tax treatment of employer stock (if held in the qualified retirement plan account), and the availability of plan loans (i.e., loans are not permitted from IRAs, and the availability of loans from a qualified retirement plan will depend on the terms of the plan). For additional information, view the FINRA Website.

SS&C is not affiliated with Morgan Stanley Smith Barney LLC or its affiliates.

Securities products and services are offered by Morgan Stanley Smith Barney LLC, Member SIPC.

System response and account access times may vary due to a variety of factors, including trading volumes, market conditions, system performance, and other factors.
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Assumptions

Introduction

Based on the information provided, this report compares the NUA option relative to an IRA rollover. This NUA Calculator is intended to serve as an informational tool only, and should not be construed as legal, investment, or tax advice. You should discuss your situation with your financial planner or tax advisor before acting on the information you receive from the NUA Calculator, and to identify specific issues not addressed by the NUA Calculator.

Before deciding whether to retain assets in an old employer plan or roll over to an IRA, an investor should consider various factors including, but not limited to, investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions, and possession of employer stock. View the FINRA Investor Alert for additional information.

This report has been provided by SS&C Retirement Solutions, LLC, an SS&C company. SS&C is not affiliated with Morgan Stanley Smith Barney LLC or its affiliates (collectively, "Morgan Stanley"). No information on the SS&C site has been endorsed or approved by Morgan Stanley, and Morgan Stanley is not responsible for the contents of the SS&C site or any link contained in the SS&C site.

Projections

IMPORTANT: The projections or other information generated by the NUA Calculator regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Projections in the Results pages provided are based on the following assumptions:

  • The estimated annual return, income tax rate, and capital gains tax rate you entered in the Rate Assumptions section.
  • If you are under age 59½, a 10% additional penalty tax will apply to the withdrawal from your former employer’s plan, unless you separated from service after turning age 55. Note that the rules regarding early withdrawals are complex; therefore, you should consult a tax or financial professional if you plan to make withdrawals before age 59½.
  • Please note this calculator does not include the impact of the Alternative Minimum Tax (AMT) which can increase the effective rate paid on capital gains. Please contact your tax advisor for more information and possible implications.

Calculations

  • You are responsible for the calculation of your NUA amount and the accuracy of your tax return. You should periodically review your overall tax plan with a tax professional that knows your particular situation best.
  • The estimated value of the account is not intended to be indicative of future performance in any tax-advantaged retirement accounts.
  • The actual future value of the retirement accounts may be higher or lower based on the annual rate of return. This should not be viewed as a prediction or guarantee of future performance. You may change the annual rate of return in the fields provided as part of the NUA Calculator. Your actual investment performance may produce higher or lower earnings. Securities that have the potential to provide a higher rate of return are associated with a higher level of risk. Many people seek to invest in securities with a lower level of risk as they get closer to retirement. Actual investment returns will vary, particularly in the long term. You must weigh the benefits of the NUA tax strategy against the increased market risk associated with investing personal savings in a single stock.
  • You may begin taking distributions from your retirement accounts without incurring an early withdrawal penalty any time after you turn age 59½. If you do, the actual account balances may be lower than the estimates indicate. The NUA Calculator assumes that no withdrawals are made from retirement accounts during the analysis.
  • The Calculator assumes no additional contributions are made to the account balance you provided.
  • The Calculator assumes Total Immediate Taxes as shown in the Summary Table and Summary Chart are paid with outside assets.
  • The Calculator assumes Total Future Taxes as shown in the Summary Table and Summary Chart are paid from the ending account balance.
  • The Calculator assumes earnings on each account are reinvested on December 31 of each year.
  • The Calculator assumes that taxes due as a result of the distribution of company stock from the retirement plan to a taxable account will be paid from outside sources. The Calculator does not assume that a portion of the company stock is sold to obtain the money necessary to pay the taxes.
  • The Calculator assumes all shares of company stock have a pre-tax cost basis, and no shares have an after-tax cost basis.
  • Any additional appreciation above the NUA after the distribution from a former employer's plan may be taxed at long-term or short-term capital gains rates, depending on how long an investor held the company stock after the distribution date. For purposes of this illustration, the Calculator assumes no appreciation in the value of company stock if “less than one year” was selected as the holding period, regardless of the estimated annual return entered.
  • For all holding periods, the Calculator assumes the NUA is taxed at the applicable long-term capital gains tax rate.
  • The NUA Calculator's results may vary with each use and change over time due to updates to the Calculator or because of changes in personal circumstances or market conditions. Consider returning to the Calculator periodically for updated results.
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How it works

For those who own highly appreciated company stock in an employer-sponsored retirement plan, transferring the shares to a taxable brokerage account is an alternative strategy to rolling the shares over to an IRA. A net unrealized appreciation (NUA) strategy may enable an investor to take advantage of the long-term capital gains rate, which is often lower than the ordinary income tax rate.

In the example below, an investor's company stock in their 401(k) plan is valued at $100,000 and their cost basis is $20,000. When company stock is transferred to a non-IRA brokerage account, taxes will be owed on the cost basis at the ordinary income tax rate. The NUA, which is the difference between the current value of the company stock and its cost basis, will be taxed at the long-term capital gains rate when the stock is sold in the future.

1. This hypothetical example assumes a 15% long-term capital gains (LTCG) rate and a 28% ordinary income tax rate are applied to this NUA illustration. These assumptions apply to federal income taxes only, however state taxes may also apply.

2. The NUA amount qualifies for LTCG treatment immediately upon distribution of shares from a former employer’s plan, but any subsequent appreciation above the NUA amount realized on shares can be long-term or short-term based on holding period from the original distribution date.

3. An additional 10% early withdrawal penalty on the cost basis amount may apply if distribution occurs before age 59½.