Never Underestimate Advice

High-performing employees of publicly traded companies are commonly rewarded with unique opportunities to purchase company stock throughout their careers. Upon retirement, using 401(k) funds to purchase company shares can present a little-known opportunity within IRS’ provisions when shares highly appreciate over the span of your career. Electing to roll over your 401(k) while keeping your company shares intact is allowed under the IRS’ net unrealized appreciation (NUA) rules.

Such a distribution involves selling all 401(k) assets (except the company stock) and rolling them into an IRA, which creates no taxable event. The company stock, then, is sent in-kind to a taxable investment account. An important tax point: the cost basis of the shares that are distributed are taxable at ordinary income rates. Let me illustrate with a hypothetical example:

  • AAPL 401(k) value:                                          $1,000,000
  • AAPL stock value (within 401(k)):                $300,000
  • AAPL stock cost basis:                                   $50,000

Electing an NUA distribution in the above scenario would entail a $700,000 rollover to an IRA, creating no taxable event. Then, the $300,000 AAPL position would be sent to an individual account. The AAPL distribution would create $50,000 of ordinary income in the year executed.

You might be thinking, “Why would I ever choose to do this? That’s $50,000 of taxable income I could avoid, right?” Here is where the benefits can come into play: once the $15,000 of tax is paid (assuming a 30% effective rate), the AAPL stock can be sold over time to provide income. The only taxes you would pay on those transactions are on the capital gains, which are taxed at preferential rates (0%, 15%, and 20%). You can then let your 401(k) grow, deferring any withdrawals (and ordinary income tax) until the AAPL is all sold.

An alternative would be to ignore the NUA election and roll over the full $1,000,000 to an IRA. While it would not create a taxable event, the AAPL stock would be sold along with the rest of the 401(k). Then, any IRA distributions taken for income needs would be taxed at ordinary rates, which are higher than the aforementioned capital gain rates.

Each company and its stock has a unique history, and this strategy may not be advisable depending on other income, the basis of your shares, and your overall goals. Please consult with a financial advisor or tax professional before electing an NUA distribution. 

Olson Wealth Group is a full service wealth management firm. With wise counsel and clear strategies, our experienced specialists provide tailored approaches that strive to maximize wealth. For more information, please visit

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. Registered states include: AZ, CA, CO, DC, FL, GA, IA, IL, IN, MA, MD, ME, MN, MO, MT, NC, ND, NV, NY, OH, OR, PA, RI, SD, TX, VA, WA, WI. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor.

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