Net unrealized appreciation (NUA) is the difference in value between the average cost basis of shares and the current market value of the shares held in a tax deferred account. This is an important strategy to understand for ExxonMobil employees who hold ExxonMobil stock in their 401(k) savings plan.

"If your distribution includes ExxonMobil securities, you may be able to defer paying tax on the portion of your distribution that represents net unrealized appreciation." factories with smoke under cloudy sky

As a resident residing in Texas, it might good to know that when you receive a distribution from your 401(k) savings plan, the distribution is generally taxable to you at ordinary income tax rates. To avoid immediate taxation, a tax-free rollover to a traditional IRA is commonly done. Other than special rules that apply to Roth and other after-tax contributions, ultimately the distributions received from the IRA will be taxed at ordinary income tax rates.

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However, if the distribution includes ExxonMobil securities, you may be able to defer paying tax on the portion of your distribution that represents net unrealized appreciation. That portion of untaxed NUA will remain untaxed until you sell the stock or other securities. In addition, the NUA will not be taxed at the ordinary income tax rate; it will instead be taxed as a long-term capital gains tax rate. If used correctly, this strategy can result in significant tax savings. In this article, we will be breaking down, with examples, just what exactly NUA is, how it works and when to use it.


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