NUA - Net Unrealized Appreciation 

Which 401k, 403b, and other employer retirement plan distributions qualify?

The special tax treatment for NUA always applies to distributions of NUA employer stock that was purchased with the employee's own after-tax 401k, 403b, or other employer retirement plan contributions.

The special NUA employer stock treatment for shares bought with pre-tax contributions, employer contributions and plan income applies only to a lump sum distribution (LSD).

A LSD, for these purposes, is a 401k, 403b, or other employer retirement plan distribution:

1. of the balance to the credit of an employee (entire retirement account balance),
2. made within one tax year of the recipient (all payments must be received in one year), and
3. made on retirement account of the employee's

• death,
• attainment of age 59½ (and reaching normal retirement age under the plan),
• separation from service (except for self employed individuals); or
• disability (self employed individuals only).

These are known as "triggering events" for 401k, 403b, and other employer retirement plan.

To determine the balance to the credit of an employee, all employer retirement plans of the same type are aggregated. Thus, all profit sharing retirement plans must be aggregated, all pension retirement plans (defined benefit, money purchase and target benefit plans) must be aggregated and all stock bonus plans (ESOPs) must be aggregated.

A 401k plan may be part of either a profit sharing plan or a stock bonus plan.