Apple Retiree with Concentrated AAPL in 401(k): The NUA Decision

Raj retired from Apple in March 2025 after a 22-year engineering career. His Apple 401(k) had grown to $3.4M, of which $1.8M was employer stock accumulated through the Apple Stock Fund, the 401(k) match component, and occasional reallocations. His average cost basis on the AAPL inside the 401(k) was $41 per share across 22,000 shares; current price $218. Unrealized appreciation: $3.9M across the AAPL, reduced to $1.8M after already-realized reallocation. He asked whether to use Net Unrealized Appreciation treatment under IRC §402(e)(4) or roll the entire balance to an IRA.

Situation

His 401(k) at retirement:

Total value: $3.4M.
Apple stock: 8,250 shares at $218 = $1.798M.
Cost basis in Apple stock: $41 average × 8,250 = $338,250.
Net unrealized appreciation in Apple stock: $1.460M.
Other investments (target-date funds, bond funds): $1.602M.

His broader financial picture:

Age at retirement: 63.
Married filing jointly, spouse age 61.
Outside-401(k) assets: $720k in taxable brokerage, $285k in Roth IRAs, $195k in HSA, $1.1M home equity.
Expected retirement income: $170k/year from draws plus $48k combined Social Security starting at 67.
California residents, no plans to move.

Under IRC §402(e)(4), Net Unrealized Appreciation allows an employee to take a lump-sum distribution of employer stock from a qualified plan and pay:

Ordinary income tax on the cost basis portion in the year of distribution.
Long-term capital gains tax on the NUA portion, only when the stock is eventually sold.

The alternative is a standard rollover to an IRA, which preserves tax deferral but converts everything to ordinary-income treatment on eventual withdrawal.

What we modeled

Scenario A: Full NUA on the Apple stock, rollover of the rest.

Distribute 8,250 shares of AAPL to a taxable brokerage account.
Cost basis $338,250 treated as ordinary income in 2025.
Federal tax on $338k ordinary distribution (added to his $45k RMD-triggering income base, spouse’s $0): approximately $68,000 federal plus $22,500 California.
Remaining $1.602M of 401(k) rolled to IRA.
Future AAPL sales: long-term capital gains at 15/20% federal + 3.8% NIIT + 9.3-13.3% California on the NUA portion.

Scenario B: Full rollover.

Roll entire $3.4M to a Traditional IRA.
No 2025 tax event.
Future withdrawals taxed as ordinary income at whatever bracket applies.
RMDs start at 73 (for his birth year), reducing withdrawal flexibility later.
If he sells AAPL inside the IRA, no current tax but future withdrawal at ordinary rates.

The comparison depended on assumptions:

Assumed post-retirement income bracket: 22% federal on middle bracket, 24% on upper-middle bracket, plus 9.3% California.
Long-term capital gains rate for NUA sales: 15% federal + 3.8% NIIT + 9.3% California = 28.1% blended.
Expected holding period for AAPL post-distribution: 10-20 years.

Effective tax rates in the two scenarios:

Scenario	Upfront tax (2025)	Tax on future AAPL sales	Tax on future non-AAPL withdrawals
NUA	$90,500 on basis	28.1% LTCG blended on NUA	22-24% ordinary on rolled $1.6M
Full rollover	$0	22-24% ordinary on full AAPL value including NUA	22-24% ordinary on rolled $1.6M

Break-even analysis: the NUA strategy pays off when future ordinary-rate on the NUA portion (~33% combined federal + CA) exceeds the current-year cost plus future LTCG rate. In his bracket, ordinary rate on future withdrawals was around 32-35%. LTCG rate was 28%. NUA saved roughly 4-7% on the $1.460M of NUA, or $58,000 to $102,000 present value over his expected holding period, less the 2025 ordinary tax on the basis.

Net present value of NUA vs. rollover came out to approximately $40,000 in favor of NUA, using a 5% discount rate and a 15-year holding assumption.

There was a second consideration: concentration risk. Holding $1.8M of AAPL in a taxable account created the same concentration as holding it in the 401(k), but with faster tax access. If he wanted to diversify, he could do so inside the IRA with no tax consequence, or outside the IRA paying tax on the NUA appreciation.

What he did

He took the NUA treatment on a partial basis. He distributed 4,125 shares (half of the AAPL position) under NUA, keeping 4,125 shares inside the rollover IRA. This hedged the decision: half the position got NUA treatment, half retained full deferral.

The half-NUA distribution produced:

Ordinary income 2025: $169,000 (half of basis).
Federal tax added: ~$35,000.
California tax added: ~$13,000.
AAPL shares in taxable: 4,125 with cost basis $169,125 and FMV $899,250.

He then sold 1,000 shares of AAPL from the taxable account in 2026 to diversify, paying long-term capital gains tax on the $177 per share NUA ($177,000 gain) at 28.1% blended = $49,700. He reinvested the $218,000 of net proceeds into a mix of international equities and bonds.

For the IRA side, he made two Roth conversions in 2025 and 2026 at approximately $80k each, filling the 24% federal bracket. This gradually moved funds from tax-deferred to tax-free while his income was relatively low (post-retirement, pre-Social-Security, pre-RMD). He planned to continue the conversions annually through age 72.

What he wishes he had done differently

He did not track his 401(k) cost basis historically. Apple’s 401(k) record-keeper (Empower) had the data, but he had never looked. Had he seen the basis year-by-year, he would have noticed that his post-2015 contributions had been mostly at $100+ per share, while his pre-2010 contributions were at $5-15 per share. The 2010-era shares accounted for 70% of the NUA. If he had been able to selectively distribute only those old shares, his NUA payoff would have been larger. Plan administrators allow a lump-sum distribution under NUA rules but typically do not allow share-specific lot selection inside 401(k) accounting.

He also retired in a year when his income was still moderately high due to a 2025 bonus payout. Waiting until 2026, his first “clean” retirement year, would have put him in a lower bracket for the NUA basis recognition, saving approximately $8,000 of federal tax. This is a timing issue he could have controlled by coordinating the retirement date with the calendar.

Third regret: he did not enable the mega-backdoor Roth during his working years. Apple’s 401(k) does not offer the Mega Backdoor as of 2025 (Apple and Nvidia are known for not offering this feature). But he could have opened a Roth IRA years ago through backdoor conversion. At age 40-55, he had 15 years to contribute $7,000 per year (backdoor Roth), approximately $105,000 of Roth principal. At 7% over 20 years, that corpus would be worth approximately $406,000 today, tax-free forever.

Frequently asked

What is Net Unrealized Appreciation?

NUA is the difference between the cost basis of employer stock held in a qualified retirement plan and its fair market value at distribution. Under IRC §402(e)(4), a lump-sum distribution of employer stock allows ordinary-income treatment on the basis and long-term capital gains treatment on the NUA portion at eventual sale.

What are the requirements for NUA?

The distribution must be part of a lump-sum distribution: the entire balance of the employer’s qualified plan paid within one tax year, following a triggering event (separation from service, disability, age 59 1/2, or death).

Can I do a partial NUA distribution?

You can distribute part of the employer stock under NUA while rolling the rest to an IRA, but the overall distribution must still qualify as a lump-sum. Consult the plan and a tax advisor on specifics.

What happens if I die holding NUA stock?

The NUA portion at death does not receive a step-up in basis under current rules. Heirs inherit at fair market value for post-NUA appreciation, but the NUA itself remains taxable at long-term capital gains rates when heirs sell.

Does NUA apply to mutual funds in my 401(k)?

No. NUA only applies to employer stock, which means the employer’s own stock. Mutual funds, target-date funds, and diversified fund options do not qualify.

Composite scenario drawn from common patterns in our advisor network's casework. Names, companies, and exact numbers are illustrative. Not tax, legal, or investment advice.