• A tax strategy known as net unrealized appreciation (NUA), when applied to company stock, can help you effectively pay lower capital gains rates on a portion of your tax-deferred assets instead of paying the typically higher ordinary income rates.
• NUA may be helpful if used during the “income gap” years, which generally is a period of lower income that some people experience after leaving work, but before Social Security, pensions, and other income sources commence.

Are you one of the 2+ million Fidelity customers who holds company stock in a 401(k) or other workplace retirement savings plan?

If so, you should know about a tax break that could save you a bundle—if you qualify.

Anyone who owns company stock will eventually have to decide how to distribute those assets—typically when you retire or change employers. Taking a distribution could leave you facing a big tax bill, but a little-known tax break—taking advantage of net unrealized appreciation (NUA)—has the potential to help.

“With appreciated company stock, you’ll face the question of what kind of taxes—capital gains vs. ordinary income taxes—you will wind up paying on the gains of your company stock holdings over time,” says Mitch Pomerance, vice president and financial consultant at Fidelity Investments.

“With NUA, when you have company stock in your qualified retirement plan, such as your 401(k), and take a lump-sum distribution from a qualified retirement plan, you can effectively pay lower capital gains rates on a portion of your tax-deferred assets instead of paying the typically higher ordinary income rates when assets are withdrawn from the tax-deferred account,” explains Pomerance. Read More…