NUA vs. Direct Rollover: A Critical Decision for P&G Employees with Company Stock

What is it

When you retire or leave P&G, you face a one-time, irreversible decision: roll everything into an IRA or elect Net Unrealized Appreciation (NUA) — transferring the preferred shares in your PST Plan to a brokerage account with the rest rolling over to an IRA. The benefits are in the taxes

Direct Rollover to IRA

• All assets roll to a Traditional IRA — no immediate tax due
• Taxed as ordinary income on every future withdrawal (10-37%)
• Tax-deferred compounding continues inside the IRA
• Higher RMDs over time on full appreciated value
  

NUA strategy

• Preferred shares transfer in-kind to a brokerage account
• Pay ordinary income tax on cost basis now ($6.82/share)
• These shares then taxed at capital gains rates (0 20%) when sold
• Reduces future Required Minimum Distributions (RMDs)
  

How NUA works — step-by-step

1. Triggering Event — Retire, turn 59½, become disabled, or pass away.
2. Lump- Sum Distribution — Distribute your entire plan balance in one tax year.
3. Stock Transferred — Company stock moves in-kind to a brokerage account. Other assets roll to an IRA.
4. Pay Tax on Cost Basis — You owe ordinary income tax on the cost basis of the preferred shares in the year of distribution.
5. Sell When Ready — When you sell the stock at a future date, the appreciation (NUA) is taxed at favorable long-term capital gains rates.
   

Concrete Example

P&G Employee Retiring with $3m in combined 401k and PST Plan with $650k of Preferred Shares ($25,000 basis)

NUA Strategy

$2.35m rolled over to IRA and $650,000 to brokerage account

RESULT

Only pay ordinary income tax on $25,000 of cost basis + 0-20% capital gains on $650k of NUA when sold. If structured properly, these shares can be sold at 0% Federal Long Term Capital Gains brackets over time.