Supercharge Your Employee Stock: Making the Most of Your Company Shares

About This Article

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If you’re working in tech, pharma, or a scrappy startup, there’s a good chance your company has thrown some stock your way as part of your compensation package. But what happens when it’s time to cash in? Enter Net Unrealized Appreciation (NUA)—the hack that could be your ticket to maximizing those hard-earned stock gains.

What’s NUA, and Why Should You Care?

Getting a bonus—whether in salary or stock—is always a win, but what’s not so great is how much you actually take home after taxes. But what if I told you there’s a way to keep more of that bonus from slipping through the cracks? NUA is a tax strategy that’s like discovering a cheat code in your employee stock which could unlock potential savings you didn’t even know were there. Here’s the gist: if you have company stock in your 401(k) or other employer-sponsored retirement plan, NUA lets you move that stock out of the retirement plan and into a taxable brokerage account. The beauty of this move is that the appreciation of the stock (i.e., the increase in value since you first received it) is taxed at the long-term capital gains rate, which is generally lower than the ordinary income tax rate.

How Does It Work? Let’s Break It Down:

1. The Move:
   When you retire or leave your company, you can take a distribution of your company stock from your retirement plan. Instead of selling it within the plan, you move it to a taxable brokerage account.

2. The Tax Twist:
   You’ll pay ordinary income tax on the cost basis (what the stock was worth when you got it), but here’s the twist: the NUA—the growth in the stock’s value is taxed at the long-term capital gains rate when you sell the stock. That could mean serious savings, especially if your stock has appreciated significantly.

3. The Long Game:
   If you hold onto the stock and it continues to appreciate, the additional gains will also be taxed at the long-term capital gains rate when you sell. This can be a big win compared to leaving the stock in your retirement plan, where any withdrawals would be taxed as ordinary income.

Who Should Consider NUA?

1. Your Company Stock Has Soared:
   If your company stock has significantly appreciated in value, NUA could help you keep more of those gains in your pocket.

2. You’re In a High Tax Bracket:
   If you expect to be in a high tax bracket during retirement, NUA might help you lower the tax hit on your withdrawals.

3. You’re Nearing Retirement or Switching Jobs:
   NUA is typically only available when you leave your job or retire, so it’s worth considering if you’re at that crossroads.

Final Thoughts: Don’t Go It Alone

While NUA can be a game-changer, it’s also a complex strategy with plenty of moving parts. Before making any decisions, it’s crucial to chat with a financial advisor who can help you navigate the ins and outs and ensure it aligns with your overall financial plan. Remember, it’s not just about the numbers, it’s about making sure your money works as hard for you as you’ve worked for it.

For a more in‑depth discussion and additional tips, contact us today!

This content is being provided for informational purposes only and should not be construed as specific recommendations or investment advice. Always consult with your investment professional before making important investment decisions. This is based of current tax laws and rules and is subject to change.