Retirement tax · comparison
Net Unrealized Appreciation vs. an IRA Rollover
Updated 2026-10-21 · Gregory Garone, CEPA®
Short answer: NUA tends to win when the company stock has a low cost basis compared with its current value. You pay ordinary income tax only on the basis now, and the growth is taxed later at long-term capital gains rates. A full IRA rollover defers all tax now but turns every future withdrawal into ordinary income.
Use NUA vs. Roll it all to an IRA, side by side
| Question | Use NUA | Roll it all to an IRA |
|---|---|---|
| Tax now | Ordinary income tax on the stock’s cost basis | None |
| Tax on the growth | Long-term capital gain when the shares are sold | Ordinary income when withdrawn |
| Required distribution | Must be a lump-sum distribution of the whole account within one tax year after a triggering event | No special requirement |
| Early withdrawal penalty | 10% may apply to the taxable basis if under 59½, unless you left the employer in or after the year you turned 55 | Not triggered by the rollover itself |
| Heirs | NUA does not receive a step-up in basis at death | Inherited IRA withdrawals are taxed as ordinary income |
| Concentration risk | You now hold the shares in a taxable account and can diversify over time | Shares can be sold inside the IRA with no tax |
When each one tends to fit
Use NUA may fit when
- The stock’s cost basis is a small share of its current value.
- You can pay the tax on the basis without selling the shares.
- You have had a triggering event such as separation from service or reaching 59½.
Roll it all to an IRA may fit when
- The cost basis is close to the current value.
- You expect to be in a low ordinary income bracket for many years.
- You want to diversify immediately with no tax at all.
An example
Illustration only: 5,000 shares worth $500,000 with a $50,000 cost basis. With NUA, $50,000 is taxed as ordinary income now and the $450,000 gain is taxed at long-term capital gain rates when sold. With a full rollover, all $500,000 is taxed as ordinary income as it is withdrawn. The wider the gap between basis and value, the more NUA tends to help.
Questions to bring to your CPA or advisor
- What is the cost basis of the company stock, and does the plan administrator confirm it?
- Have we had a qualifying triggering event, and have any earlier partial distributions broken the lump-sum requirement?
- Can we pay the tax on the basis from cash?
- How quickly do we want to reduce the concentration in one company?
Common questions
Can I use NUA for only some of my shares?
Yes. You can move some shares to a taxable account under NUA and roll the rest to an IRA, as long as the entire account is distributed within the same tax year.
When is the NUA gain taxed?
When you sell the shares. The NUA portion is always long-term capital gain, and growth after the distribution is short- or long-term depending on how long you hold it afterward.
Does NUA count toward the Net Investment Income Tax?
The NUA itself is generally not subject to NIIT when sold, but growth after the distribution can be.
What is a triggering event for NUA?
Separation from service, reaching age 59½, total disability for self-employed participants, or death.
Sources and limitations
More comparisons
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