If you hold employer stock inside your 401(k), you may qualify for one of the most valuable tax breaks in the code. This calculator compares distributing the stock under NUA rules against the standard rollover-to-IRA path, showing your after-tax outcome for each.
Under IRS rules (IRC §402(e)(4)), when you take a lump-sum distribution of employer securities from your 401(k) after a qualifying triggering event, the net unrealized appreciation — the increase in value above your cost basis — is not taxed as ordinary income at distribution. Instead, it is taxed at long-term capital gains rates when you eventually sell the shares.
The basis portion (what you originally paid) is taxed as ordinary income immediately in the year of distribution. The NUA portion is taxed at long-term capital gains rates when sold — and critically, it qualifies for long-term treatment even if you sell the next day. That is the entire advantage: conversion of ordinary income into capital gains.
You pay ordinary income tax on the basis right away, which can be a large, unwanted tax bill in a single year. If your ordinary rate is high, the basis is large, or you would otherwise be in a low bracket during retirement, the immediate-tax cost can outweigh the rate differential. This calculator models both paths to the same terminal date so the comparison is apples-to-apples.
💡 Ten-percent penalty trap: If you separate from service before age 55 (or before 50 for public safety employees), the ordinary-income portion of a lump-sum distribution can be subject to the 10% early-distribution penalty. Always confirm the age-55 separation exception applies to your plan before electing NUA.
Cost basis $180,000, FMV $300,000, ordinary rate 37%, LTCG rate 23.8%. NUA is $120,000. The immediate ordinary tax on basis is $66,600. Here the basis is large relative to the appreciation, so the ordinary tax hit is severe — this is the classic case where the NUA election can lose to a straightforward rollover.
Cost basis $15,000, FMV $450,000, ordinary rate 24%, LTCG rate 18.8%. NUA is $435,000. Immediate tax on basis is only $3,600, while $435,000 rides at capital gains rates — saving roughly $12,000+ versus ordinary treatment on the whole balance. This is where NUA shines.
Cost basis $50,000, FMV $250,000, ordinary 32%, LTCG 18.8%. Immediate tax on basis $16,000; NUA $200,000 taxed at 18.8% on sale. Whether this wins depends heavily on the growth rate and holding period you model — which is exactly why the calculator projects both paths forward.
The NUA strategy is not for everyone, and the IRS does not allow you to test it and undo it — the election is irrevocable once made. Use this calculator as a screening filter, then confirm with a tax professional. The profile that benefits most typically combines three traits:
NUA only pays off if you hold the shares — often for years. That means your retirement security becomes tied to a single company, which is precisely the risk diversification is meant to eliminate. A rigorous analysis must weigh the tax savings against the possibility that the stock underperforms a diversified portfolio. Some advisors recommend electing NUA and selling the shares immediately to capture the rate arbitrage without the holding risk, accepting that they lose the deferred-growth benefit.
The distribution must be a lump-sum distribution of the entire plan balance — you cannot cherry-pick the company stock while rolling over the rest. However, after the distribution you may roll the remaining assets into an IRA. You also cannot do a partial distribution and preserve NUA treatment for later; the triggering event and the distribution must fit within the rules. Brokerage mechanics matter too: the shares must be transferred in kind to a taxable brokerage account, not sold inside the plan.
💡 Verify before you elect: The cost basis must be reported to you by the plan administrator. If the plan reports an average cost basis that differs from your records, or if you have made after-tax contributions, the calculation changes. Request the plan's written cost basis in advance — a plan's estimate on Form 1099-R can be wrong, and correcting it after the fact is difficult.
⚠️ Important Disclaimer: This NUA calculator provides estimates for educational purposes only and does not constitute tax or financial advice. NUA elections are irrevocable, involve plan-specific rules, and interact with the alternative minimum tax, the 3.8% net investment income tax, and state tax law in ways this model simplifies. Rules and rate thresholds change annually. Consult a qualified tax professional or CPA who can review your specific plan documents and cost basis before making an election.