Do You Know How to Leverage Net Unrealized Appreciation (NUA) With Your Boeing Stock?

By Scott Bishop and Tom Mountain

If you own stock that you purchased from the Boeing Employee Stock Purchase Plan, you may be able to gain some tax benefit from an election that the IRS allows for employee shareholders. 

Net Unrealized Appreciation (NUA) refers to gain in the value of a security after purchase but before selling the security. For example, if you bought $100 worth of stock and the stock’s value has since risen to $250, the $150 is “unrealized” if you have not sold the shares. The initial investment of $100 is the cost basis. In the preceding example, the NUA represents the $150 difference between the cost basis and the current stock price. If you purchased stock regularly through the ESPP, each stock lot will have a different cost basis, since stock prices change over time, so it is most common to calculate a portfolio’s cost basis by taking an average of all lots.

Distribution Options

Should you take advantage of this tax-saving strategy, you will only pay long-term capital gains tax on the NUA portion of your shares (instead of paying tax on the same amount at the higher ordinary income rate). The cost basis of the shares will be taxed as ordinary income in the year of the distribution. The NUA of your shares will be deferred until you sell the shares. If you decide not to use this strategy, the shares will not be taxed at all until you sell them, but the full value of the shares will be taxed as ordinary income at the time of sale. Regardless of which path you choose, the cost basis will be taxed as ordinary income, since you initially purchased the shares with pretax dollars.

Requirements

To take advantage of the particular strategy outlined here, you need to take a lump-sum distribution of your entire retirement plan balance within one year of distributing your Boeing stock, which can only be done under one of four qualifying conditions as outlined in IRS Publication 575: if you pass away, reach age 59½, terminate your employment, or become disabled. (1) You can distribute only the stock initially but must complete the remainder of the lump distribution within one year, meaning that you need to transfer all of your assets out of the company plan. Also, you will not be able to use this option should you choose to roll your stock into an IRA.

Pros and Cons

Leveraging NUA makes the most sense for employees whose stock has appreciated significantly—typically employees who have been investing in the ESPP for many years. It is not an all-or-nothing proposition; you can use this strategy for some, but not necessarily all, of your company stock. We need to consider the timing of your retirement and the other assets you will draw against as income streams. We must factor in the risk of future volatility associated with leaving money in a stock. Last but not least, we will need to consider which funds will be used to pay the tax on the cost basis if you elect to do a lump-sum distribution since you will not have any sale proceeds to draw from unless you sell the shares immediately.

We’re Here to Help

Our team has extensive experience working with Boeing employees to create a solid foundation for retirement. If you are approaching retirement in the next few years and would like help evaluating your options, we’d love to speak with you. Give us a call at (562) 432-3783 or send an email to [email protected] to schedule a complimentary introductory consultation.

About Us

Mountain-Bishop Private Wealth Management is a full-service independent financial services and investment services firm that has been providing retirement and investment guidance to high-net-worth individuals, business owners, and Boeing employees for more than 25 years. Through our long-term guidance, we strive to help our clients build, protect, distribute, and transfer their wealth, tailoring our services and strategies to address each client’s unique needs so they can bridge the gap between their current financial situation and their long-term goals.

Scott and Tom built their practice on trust and excellence. They focus individually on each client, delivering the personalized touch that is missing with many other firms.

The Financial Consultants of Mountain-Bishop Private Wealth Management are registered representatives with, and securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.

The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: (AK, AZ, CA, CO, FL, GA, ID, IL, MI, MO, NC, NJ, NM, NV, OR, PA, SC, UT, VA, WA) SCOTT E. BISHOP CA LICENSE OB55872 THOMAS P. MOUNTAIN CA LICENSE OB55827

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(1) https://www.irs.gov/publications/p575#en_US_2019_publink1000226871