When you draw from traditional pre-tax accounts like a 401(k) in retirement, your distributions will be taxed at whatever ordinary income tax rates are in effect at the time—with an exception.
Net unrealized appreciation, or NUA, now allows investors to pay tax on some of their retirement savings at long-term capital gains rates, instead of regular income tax rates, if they have appreciated stock of their employer (or former employer) inside a retirement plan sponsored by their employer (or former employer) and follow certain rules.
Under a provision in President Barack Obama's proposed 2016 budget, the NUA would be eliminated. But plan participants 50 or older by the end of this year would still be eligible for the special tax break, provided they meet all the rules.
Chances of adoption: Good. Jeffrey Levine, a CPA and an IRA technical consultant with Ed Slott & Co., calls the NUA "one of the biggest tax breaks in the entire tax code for some retirement account owners."
What advisors are saying: This is yet another reason to diversify. "Loading up on company stock has always been a strategy that could easily backfire because of the risks inherent in having too much of your money in a single stock," said Casey Morris, a certified financial planner with Capstone Pacific Investment Strategies, Inc. "You don't have to work in this business very long before you start meeting people who lost money trying to hold out for a tax break, sometimes losing far more due to negative investment performance than they would have saved on a tax break like NUA...This could be a good time to reevaluate whether or not retirement plan savers have too much in company stock."
For more information on other provisions that could affect you, click here.