Net unrealized appreciation · Also called: net unrealized appreciation, employer stock, company stock distribution
The appreciation in employer stock held in a 401(k). On a lump-sum distribution, the plan's cost basis is ordinary income now, but the NUA is taxed as a long-term capital gain only when you sell.
When you take a lump-sum distribution of employer stock from a 401(k), the plan's cost basis in the stock is taxed as ordinary income in the distribution year. The rest — the net unrealized appreciation — is not taxed at distribution; it becomes the stock's basis in a taxable account and is taxed as a long-term capital gain when you sell, regardless of how long you hold it.
This makes NUA a valuable one-time election for employees holding highly appreciated company stock. RetIQ models it with an Employer Stock (NUA) event: the plan basis is ordinary income, the stock is deposited to brokerage with basis = the plan basis, and the NUA is realized as a capital gain on sale.