Net Unrealized Appreciation (NUA)

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Definition of 'Net Unrealized Appreciation (NUA)'

Net unrealized appreciation (NUA) is the increase in the value of an asset that has not been realized through a sale or other disposition. This term is most commonly used in the context of qualified retirement plans, such as 401(k) plans and IRAs.

When an employee makes contributions to a qualified retirement plan, those contributions are invested in the plan's investment options. Over time, the value of those investments may increase or decrease. If the value of the investments increases, the employee will have NUA in their account.

NUA is not taxed until the employee withdraws the funds from the plan. However, there are some exceptions to this rule. For example, NUA is taxed when an employee takes a hardship withdrawal from a qualified retirement plan.

There are a few things to keep in mind when it comes to NUA. First, NUA is only taxed at the capital gains rate, which is typically lower than the ordinary income tax rate. Second, NUA is taxed on a pro-rata basis. This means that the amount of NUA that is taxed is based on the ratio of the NUA to the total value of the account.

Finally, NUA can be transferred to an IRA without triggering a taxable event. This can be a valuable option for employees who want to roll over their qualified retirement plan balances to an IRA.

Here are some additional details about NUA:

* NUA is calculated as the difference between the fair market value of an asset and its cost basis.
* The cost basis of an asset is the amount that was originally paid for it.
* The fair market value of an asset is the price that it would sell for on the open market.
* NUA can be realized in a number of ways, including through a sale, a rollover, or a distribution from a qualified retirement plan.
* When NUA is realized, it is taxed at the capital gains rate.
* NUA can be transferred to an IRA without triggering a taxable event.

If you have any questions about NUA, please consult with a qualified tax advisor.

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