401(k) Rollover & NUA Planning for Oakland County & Metro Detroit Retirees

When you separate from an employer, you generally have several options for the money in your 401(k): leave it in the old plan, roll it into a Traditional IRA, roll it into a new employer's plan, or take a distribution. For most of the account, rolling into a Traditional IRA to preserve tax deferral is a reasonable default. But that default can be costly for one specific asset: employer stock that has appreciated significantly inside the plan. Once appreciated company stock is rolled into an IRA, a tax strategy called Net Unrealized Appreciation (NUA) is gone for good, so the rollover decision deserves a careful look before any paperwork is signed, not after.

NUA is the difference between what your 401(k) originally paid for shares of your employer's stock (the cost basis) and what those shares are worth when they are distributed. Under IRC Section 402(e)(4), if qualifying employer stock is distributed in kind, meaning the actual shares move into a taxable brokerage account instead of being sold and rolled into an IRA, the cost basis is taxed as ordinary income in the year of distribution, while the appreciation (the NUA) may be taxed later at long-term capital gains rates when the shares are eventually sold. Long-term capital gains rates are generally lower than ordinary income rates, so this treatment could reduce the total tax paid on that appreciation, though the exact result depends entirely on your personal numbers.

NUA tends to be worth modeling for retirees with a long tenure at one employer (often twenty-plus years), a meaningful position in employer stock inside their 401(k) that was accumulated at a low average cost relative to today's value, and an intention to eventually diversify out of that stock over time rather than sell it all immediately. It is not relevant if your 401(k) does not hold actual employer shares, if the appreciation is small relative to the cost basis, or if you have already rolled the stock into an IRA, since NUA eligibility is lost permanently at that point.

Yes. Taking employer stock in kind means paying ordinary income tax on the cost basis in the year of distribution, which is real money due sooner rather than later. It also means holding a concentrated position in a single company's stock in a taxable account, which carries its own risk if that company's stock declines. NUA shares also do not receive the same step-up in basis at death that IRA-held assets may not need in the same way, and a distribution taken before age 59½ may trigger a 10% early withdrawal penalty on the basis portion. NUA is a tool for specific situations, not a universal solution, and it should be modeled against a standard rollover before you decide.

As an independent firm with no captive product line and no incentive to route your account into a particular proprietary offering, our role is to help you and your CPA see the full picture before any distribution paperwork is filed: what the plan holds, what the cost basis may be, how an NUA distribution compares to a standard rollover under your specific numbers, and how either path fits alongside your pension election, Social Security timing, and Medicare planning. We do not prepare tax returns or give tax advice; we coordinate with your CPA or tax preparer, who should confirm the numbers and the filing.

We regularly work with long-tenure retirees from Michigan's major corporate employers, including General Motors and Ford, whose 401(k) plans have historically offered company stock as an investment option. Because plan rules, stock structures, and record-keeping vary by employer, we look at the specific plan documents and cost basis records for your account rather than applying a generic rule of thumb. Our articles on NUA for GM retirees and NUA for Ford retirees walk through employer-specific examples in more detail.