NUA bottleneck
Certified Financial Planner glossary · Certified Financial Planner
Definition
Net unrealized appreciation on employer stock may be taxed at LTCG after an ordinary-income hit on basis at distribution.
NUA bottleneck in plain English
NUA looks brilliant until the plan's cost basis is almost as high as today's FMV, so the ordinary-income hit at distribution swallows the capital-gain upside. NUA bottleneck is that tradeoff: net unrealized appreciation on employer stock may be taxed at long-term capital gains after an ordinary-income hit on basis at distribution. If basis is a large fraction of FMV, the ordinary hit can erase the LTCG benefit. Teach the tradeoff; do not invent a universal cutoff. Run the basis-to-FMV ratio before cheering NUA.
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