Got Company Stock in Your 401(k)? You Should Know about NUD.
In many large publicly traded companies, it’s common to reward employees with employer stock . Usually through a profit-sharing or ESOP plan, or at least by allowing employees to purchase stock themselves inside of their 401(k) plan. The disadvantage is when you withdraw money from a company plan, it is taxed as ordinary income . However, the IRS — if you can believe it — has two special rules to help: Net Unrealized Appreciation (NUA) and Net Unrealized Depreciation (NUD). SEE MORE Is Securities-Based Lending a Good Idea? Given today’s stock market volatility, it’s the NUD rule that piques my interest right now. First things first – understand the NUA rule Net Unrealized Appreciation (NUA) is a clunky technical term but an important potential tax-savings opportunity for those with company stock in their employer plan. Under the NUA rule, only the cost basis of the shares is subject to tax (and potentially an early withdrawal penalty) at the time of the distribution. In simple terms, the cost basis is what a person pays for the stock.
Got Company Stock in Your 401(k)? You Should Know about NUD.
In many large publicly traded companies, it’s common to reward employees with employer stock . Usually through a profit-sharing or ESOP plan, or at least by allowing employees to purchase stock themselves inside of their 401(k) plan. The disadvantage is when you withdraw money from a company plan, it is taxed as ordinary income . However, the IRS — if you can believe it — has two special rules to help: Net Unrealized Appreciation (NUA) and Net Unrealized Depreciation (NUD). SEE MORE Is Securities-Based Lending a Good Idea? Given today’s stock market volatility, it’s the NUD rule that piques my interest right now. First things first – understand the NUA rule Net Unrealized Appreciation (NUA) is a clunky technical term but an important potential tax-savings opportunity for those with company stock in their employer plan. Under the NUA rule, only the cost basis of the shares is subject to tax (and potentially an early withdrawal penalty) at the time of the distribution. In simple terms, the cost basis is what a person pays for the stock.