Net Unrealized Appreciation in 2026: When Company Stock Beats a Rollover

In 2026, with long-term capital gains tax rates still significantly lower than ordinary income tax rates, and with the new SECURE 2.0 provisions now in full effect, the NUA calculation deserves a serious look before anyone signs a rollover form. The conventional rollover advice – move everything to an IRA, diversify broadly – is often correct, but it quietly ignores a tax provision that can be genuinely powerful in the right situation: net unrealized appreciation, or NUA.

What Net Unrealized Appreciation Actually Means

This is not a loophole or a gray area; it is explicitly permitted by the rules governing lump-sum distributions, which are codified in the tax code and described in IRS Publication 575. When you take a lump-sum distribution of company stock from a 401(k) or similar plan and transfer the shares directly to a taxable brokerage account, rather than rolling them over into an IRA, you pay ordinary income tax only on the cost basis, not on the appreciation. The NUA is the difference between the cost basis of employer stock held inside a qualified retirement plan and the fair market value of that stock at the time of distribution.

The $80,000 is taxed as ordinary income in the year of distribution, and the $270,000 of net unrealized appreciation is not taxed until you sell, and when you sell, it qualifies for long-term capital gains. The mechanics matter here. Suppose your employer has contributed shares to your 401(k) over the years, and those shares have a total cost basis of $80,000, but today they are worth $350,000.

The 2026 Tax Rate Environment and Why It Matters Now

For a retiree in the 22 or 24 percent ordinary income tax bracket, converting $270,000 of potential ordinary income into a 15 percent capital gains liability represents a real, calculable difference in after-tax wealth. The NUA strategy lives or dies on the spread between ordinary income tax rates and long-term capital gains rates. In 2026, that spread remains significant.

The IRS does not set a threshold for when the strategy is worth pursuing, but financial planners generally consider the strategy most compelling when the NUA is at least 50 percent of the total value of the stock, and increasingly attractive as the percentage increases. The broader market context also shapes the opportunity for NUA. Workers at companies whose stock has outperformed—think of large-cap technology companies, energy companies, or major financial institutions that have expanded since 2023—may be holding shares with very low cost bases relative to their current value.

The Lump-Sum Distribution Requirement and Triggering Events

For most people retiring in 2026, the triggering event will be separation from service or age 59 12. To use the NUA treatment, you must take a lump-sum distribution of the entire account balance from the plan in a single tax year. One of the most common misunderstandings about the NUA is that you can’t take company stock out of a plan and roll the rest over to an IRA tax-free.

You can transfer the company stock to a taxable account, which will trigger the NOL on that portion, and simultaneously roll over all other assets (mutual funds, bonds, diversified holdings) into a traditional IRA. This combination is the usual way to execute the strategy, and it preserves the tax-deferred status of the non-stock assets while extracting the tax advantage on the appreciated company stock. The lump-sum requirement does not mean that you have to cash everything out and pay taxes on everything.

Running the Numbers: A Concrete Comparison

Option one: roll everything into an IRA, and future withdrawals will be taxed as ordinary income, at a rate of 22 to 24 percent, depending on the size of the account and the amount of withdrawals. Option two: roll the $500,000 in diversified assets into an IRA and distribute the company stock in kind to a brokerage account. In the year of distribution, the $80,000 cost basis is taxed as ordinary income, a tax bill of about $17,600 to $19,200 at a 22 to 24 percent marginal rate, and the $270,000 in capital gains is deferred until the sale and taxed at 15 percent for most retirees in this income range, a tax bill of about $40,500 when realized, and it can be spread over several years by selling the shares gradually.

At 24 percent, the total federal tax on that $350,000 could come to $84,000. The NUA approach, including the ordinary income tax on the basis, comes to about $57,000 to $60,000, a difference of $24,000 to $27,000 in this case, before state taxes and investment returns are taken into account. Compare that to rolling the stock into an IRA and withdrawing the full $350,000 in installments at ordinary income tax rates.

When NUA Does Not Work in Your Favor

At the 12 percent ordinary income tax rate, the advantage of the NUA strategy is minimal. If your company stock has a high cost basis relative to its current value, the ordinary income tax hit on the basis may exceed the long-term savings. The strategy has real limitations and several situations where it simply does not make sense.

The calculation of the NUA assumes that the shares will retain their value long enough to be sold at a profit. This assumption carries risk. Workers at companies with genuinely uncertain long-term prospects, or anyone who cannot psychologically tolerate concentration risk, should weigh the diversification benefits heavily against the tax savings. Concentration risk is the other honest limitation that financial advisors sometimes gloss over. If the company in question, after you have received the distribution, encounters financial difficulties, as has happened to major employers in several industries in recent years, the tax savings can be overwhelmed by investment losses.

A retiree in California faces a state capital gains rate that matches ordinary income, which effectively cuts the federal advantage in half or more for state tax purposes. State income taxes add another layer. Some states tax capital gains at ordinary income rates, which can erode the federal advantage significantly depending on where you live.

Required Minimum Distributions and the 2026 RMD Landscape

The RMD calculation also means that a very large IRA balance can generate substantial forced ordinary income in later years, which can push retirees into higher brackets than they had anticipated. Distributing appreciated company stock via NUA reduces the IRA balance and, consequently, future RMD amounts – which can be a tax planning benefit for retirees concerned about bracket creep in their seventies and eighties. Under SECURE 2.0, the RMD age is now 73 for most retirees, with a further increase to 75 for those born in 1960 or later. For NUA analysis, this extended deferral period makes the IRA rollover option slightly more attractive than in years past, since you have more time to let the assets grow before the IRS forces you to take them out.

Executing the Strategy: Practical Steps

The distribution must be structured carefully, with a transfer of shares to a taxable account rather than a cash withdrawal. Triggering the NUA by mistake, for example by selling the shares in the plan before the distribution, eliminates the tax benefit forever. The NUA requires close coordination between your plan administrator, your receiving broker and your tax advisor. The first step is to obtain a cost basis statement from your plan – specifically, the plan’s recorded cost basis for employer stock contributions, which may differ from the market value at the time of the contribution. Some plans maintain detailed records, others require some research.

Additional Reading

• IRS Publication 575, Pension and Annuity Income, available at IRS.gov, covers the NUA rules and the lump-sum distribution requirements directly from the source.
• Fidelity Investments publishes guidance on the NUA strategy and retirement distribution planning, which explains the cost-basis calculation in practical terms.
• Vanguard research on retirement income strategies covers the trade-offs between IRA rollovers and taxable distributions for retirees with large account balances.
• Morningstar provides ongoing analysis of retirement tax planning, including the interaction between RMD rules and distribution sequencing strategies under current law.
• The Consumer Financial Protection Bureau offers retirement planning resources in plain language at ConsumerFinance.gov. These resources cover distribution options and the risks of concentrated employer stock positions.