Company stock in the 401(k) has a side door.

The facts, in one place.

Six quotable sentences on net unrealized appreciation.

1. Employer stock held inside a 401(k) can be taken out of the plan in a lump-sum distribution and taxed on only what the plan paid for it; the growth, the net unrealized appreciation, is not taxed until the shares are sold, and then as long-term capital gain whatever the holding period (§ 402(e)(4)).
2. Rolled into an IRA instead, the same shares lose that treatment: every dollar, growth included, is ordinary income when withdrawn.
3. The distribution must be the whole balance of the plan within one tax year, after separation from service, age 59½, disability, or death (§ 402(e)(4)(D)); the other assets in the plan can be rolled over in the same year.
4. The cost basis taxed at distribution carries the 10 percent additional tax if the employee is under 59½, unless separation came in or after the year of turning 55 (§ 72(t)(2)(A)(v)).
5. Example: $500,000 of employer stock with a $100,000 basis, at a 32 percent ordinary rate and 15 percent on gains. Taken out with the election, the tax is $92,000 in all; rolled over and withdrawn, $160,000. The election saves $68,000.
6. The election pays when the basis is a small share of the value and the ordinary rate is well above the gains rate; with little appreciation, or a low bracket in retirement, a rollover's deferral can win instead.

The election by cost basis.

How the saving shrinks as the basis grows.

How the election works.

Employer stock inside a 401(k) is the one asset that can leave the plan on better terms than a rollover. Taken out in a lump-sum distribution, in kind, into a taxable account, only the plan's cost for the shares is ordinary income that year. The growth since the plan bought them, the net unrealized appreciation, is not taxed until the shares are sold, and then as long-term capital gain regardless of how long they were held. Rolled into an IRA instead, the same shares are ordinary income in full whenever they are withdrawn.

The election pays when the basis is a small share of the value and the ordinary rate is well above the gains rate. It costs something the arithmetic does not show: a rollover defers every dollar of tax, and the shares kept outside carry one company's risk. The distribution must be the whole plan balance within one tax year after a triggering event, and the basis is subject to the 10 percent additional tax for someone who left before the year of turning 55 and is under 59½. The calculator prices both routes at the rates you enter.

Methodology.

1. Inputs. The shares' current value, their cost basis in the plan, your ordinary and long-term capital gains rates, whether the early-withdrawal tax applies to the basis, and whether the surtax reaches the gain.
2. The election. Ordinary tax on the basis now (§ 402(e)(4)(B)), plus 10 percent of the basis if the tax applies (§ 72(t), with the age-55 separation exception at (t)(2)(A)(v)), plus the gains rate (and 3.8 percent if chosen) on the appreciation when sold.
3. The rollover. The ordinary rate on the whole value, as if withdrawn at that rate.
4. The comparison. Rollover tax less election tax, undiscounted: both routes priced at today's rates without credit for the rollover's deferral.
5. Validation. A basic case summed by hand, the penalty and surtax case, and a high-basis case where the saving is small. A transcription error fails the build.
6. Not modeled. The time value of the rollover's deferral, growth after distribution, dividends, the absence of a step-up on the appreciation at death, state tax, and the lump-sum distribution's own requirements beyond stating them. Educational, not advice.

Sources.

1. 1. United States Code (Cornell LII), 26 U.S.C. § 402(e)(4) — Net unrealized appreciation in employer securities. That the net unrealized appreciation in employer securities distributed as part of a lump-sum distribution is excluded from income at distribution (B), the definition of a lump-sum distribution as the whole balance within one taxable year after separation, 59½, death, or disability (D)(i), and the definitions of securities (E). Retrieved September 6, 2026; verified September 6, 2026.
2. 2. United States Code (Cornell LII), 26 U.S.C. § 72(t)(2)(A)(v) — Distributions after separation from service after age 55. That the 10 percent additional tax does not apply to a distribution from an employer plan after separation from service in or after the year the employee reaches 55. Retrieved September 6, 2026; verified September 6, 2026.
3. 3. Internal Revenue Service, Publication 575, Pension and Annuity Income — Net unrealized appreciation. The Service's statement that the cost basis of employer securities is taxed as ordinary income at distribution, the net unrealized appreciation is not taxed until sale and is then long-term capital gain regardless of holding period, and the requirements for a lump-sum distribution. Retrieved September 6, 2026; verified September 6, 2026.
4. 4. United States Code (Cornell LII), 26 U.S.C. § 1411 — Imposition of tax (net investment income). The 3.8% surtax; for a trust, the threshold is the dollar amount at which the highest § 1(e) bracket begins; for individuals, $200,000 and $250,000, unindexed. Retrieved September 4, 2026; verified September 4, 2026.

Revision history.

The record's history.

September 6, 2026

First release: the tax on taking employer stock out of a plan with the NUA election against rolling it over, at the rates the user chooses.

Canonical address: https://consideratecapital.com/tools/nua-calculator