If you’re approaching retirement and have built up a significant amount of PACCAR stock in your 401(k), you may already know you have a tax decision to make. But what many employees don’t realize is just how big that decision can be—and how easy it is to miss a major opportunity.
We’re talking about the choice between rolling over your PACCAR stock into an IRA or taking advantage of a powerful tax strategy called Net Unrealized Appreciation (NUA).
In our last blog post, What Is NUA? A Powerful Tax Strategy for PACCAR Employees, we explained how NUA works: It lets you take company stock out of your 401(k) and move it to a taxable account—paying ordinary income tax only on the original cost of the stock, not its full market value. The appreciation is taxed later at long-term capital gains rates, which are often much lower.
In this post, we’ll go deeper into how an NUA strategy compares to a traditional rollover to an IRA and explore how timing, income coordination, and diversification all play a role in making the right decision. We’ll also discuss how you can use a staggered approach to stock sales to align with the rest of your retirement income strategy.
What Happens If You Roll Everything Into an IRA?
Many retirees follow a straightforward path: they leave their employer and roll their 401(k) into an IRA. It’s familiar, it feels simple, and it consolidates your accounts under one roof.
But when you hold company stock—especially stock that’s appreciated over decades—this “default” move can come at a significant tax cost. When you roll over appreciated, company contributed PACCAR shares into an IRA, you forfeit the chance to use the NUA strategy.
That means when you eventually withdraw funds, every future dollar you take out of the IRA, including the appreciation in your PACCAR stock, will be taxed at ordinary income tax rates. That could be 22%, 24%, or even higher, depending on your other income sources.
This option may still be fine for some retirees, especially if their stock hasn’t appreciated much. But for long-tenured PACCAR employees with hundreds or thousands of shares purchased over decades, it’s not unusual for the majority of the stock’s value to come from appreciation.
That’s where NUA can be a game-changer.
The NUA Path: A More Strategic Route
Let’s imagine instead that you separate your 401(k) into two parts:
- You take the PACCAR stock in-kind (without selling it) and transfer it to a taxable brokerage account using NUA rules
- You roll the rest of the 401(k)—mutual funds, cash, and other investments—into a traditional IRA
This hybrid strategy preserves tax deferral on the non-stock assets, while capturing lower capital gains rates on the PACCAR shares when you sell them.
That one choice gives you a very different tax outlook. You’ll pay ordinary income tax on the cost basis of the PACCAR shares—the average purchase price going back to day one. But the appreciation? That can sit in your taxable account, untouched, until you decide to sell it. And when you do, it’s taxed at long-term capital gains rates—often 15%, and possibly 0% depending on your income level.
You’ve turned what could have been a large ordinary income tax bill into a more manageable, flexible capital gains strategy.
Taking It a Step Further: The Staggered Sale Strategy
Many of the PACCAR clients we work with don’t sell all their NUA stock right away. Instead, they adopt a staggered sale approach—selling stock gradually over time. This lets them fund early retirement years, manage their tax bracket, and coordinate around other income sources like their PACCAR pension and Social Security.
Real World Insight: Rollover vs. NUA with Staggered Sales
Mark, a PACCAR engineer, is retiring late in the current year with the following in his 401(k):
- 4,000 shares of PACCAR stock
- Cost basis: $30/share
- Market value: $100/share
- Total stock value: $400,000
- $700,000 in mutual funds and other assets
Option A: Full IRA Rollover
If Mark rolls everything into an IRA and starts drawing income:
Every dollar withdrawn—including the $70/share of stock price appreciation—is taxed as ordinary income
A large one-time withdrawal (or RMDs later) could push him into a higher tax bracket
There is no flexibility to offset other taxable income with long-term capital gains planning
Option B: NUA + IRA Rollover
Instead, Mark uses the NUA strategy for his PACCAR stock:
- Pays ordinary income tax on $120,000 (cost basis of the shares)
- Transfers the PACCAR shares worth $400,000 into a taxable brokerage account
- Capital gains of $280,000 on the PACCAR shares will be taxed at long-term capital gains rates (0%, 15%, or 20%) only when he sells the shares
- Rolls over the $700,000 into a traditional IRA for future use
He then sells the PACCAR stock gradually over the next several years:
- Current Year: Sells $75,000 to fund retirement expenses, with the gain taxed at 0% to 15%
- Following Year: Sells another $100,000, but this time, the gain is taxed at 0% (assuming no other income).
This staggered sale strategy allows Mark to access his retirement funds in a tax-efficient way—minimizing taxes while strategically integrating NUA into his broader retirement plan. This strategy gives him cash flow without relying on fully taxable IRA withdrawals. And it creates room in his tax bracket to do other smart planning—like Roth conversions, which we cover in our blog, How to Combine NUA with Roth Conversions for a More Tax-Efficient Retirement.
Why Timing and Income Coordination Matter
NUA doesn’t live in isolation. Like every good retirement strategy, it has to integrate with other parts of your financial plan. One of the most important planning principles is income stacking—the idea that different income sources can compound in a given year and push you into a higher tax bracket. When pension payments, IRA withdrawals, Social Security, and capital gains all land in the same tax year, the result can be a surprisingly steep tax bill or unintended Medicare surcharges.
That’s why it’s important to think not just about how much income you’ll receive, but when you’ll receive it. Let’s look at how some of the income timing issues during retirement and how they interact with NUA:
PACCAR Pension
PACCAR offers a generous pension, but it adds taxable income to your retirement. If you start both pension and NUA income in the same year, you could be pushed into a higher tax bracket. Staggering these income streams—such as delaying pension payments for a year—can reduce stacking effects.
Social Security
Capital gains from NUA stock sales count toward your provisional income and can cause more of your Social Security to become taxable. If you plan to delay Social Security until age 67 or 70, you can use NUA assets to fund any income gap while keeping your taxable income low.
Medicare
Capital gains from NUA stock count toward modified adjusted gross income (MAGI)—the number used to calculate whether you’ll owe IRMAA surcharges on Medicare premiums. However, appreciation of PACCAR stock from when first bought to the day it transfers in kind out of a 401(k) and into a brokerage account is not subject to the 3.8% Medicare surcharge on investment income. Appreciation of those same shares after it transfers in kind to the brokerage account is subject to the surchage. One large stock sale could increase your Medicare costs two years later. Managing gains carefully year-by-year helps avoid crossing these thresholds unnecessarily.
Diversification: Reducing Risk Without a Tax Shock
Using the NUA strategy doesn’t mean you need to hold on to your PACCAR stock forever. A large, concentrated position in a single company—even one you know well—creates a significant amount of risk. If the stock dips in value, your retirement could be impacted more than expected.
NUA helps you unwind that risk strategically.
By transferring your PACCAR stock to a taxable brokerage account, you gain the ability to sell in smaller increments, year by year. This not only allows you to manage taxes more effectively by staying in lower capital gains brackets—it also allows you to reduce your exposure to a single stock over time, improving diversification in your portfolio.
At Grunden Financial Advisory, Inc., we often help clients build a step-by-step plan to gradually move from a concentrated stock position into a well-diversified mix of investments. Some choose to reinvest the proceeds in a mix of other investments. Others earmark stock for charitable giving—avoiding capital gains altogether while fulfilling philanthropic goals. We discuss these opportunities in our blog, How to Maximize Your NUA Strategy with Charitable Giving and Smart Income Timing.
Diversification and tax management don’t have to be competing priorities. NUA gives you the flexibility to address both at once.
The Bottom Line
There’s no one-size-fits-all answer when it comes to NUA vs. IRA rollover. But if you’re a PACCAR employee with a meaningful stock position inside your 401(k), it’s critical to understand your options before making a move.
With the right planning, a NUA plus IRA strategy—paired with a staggered stock sale approach and smart income coordination—can dramatically reduce taxes, increase retirement flexibility, and help you achieve your long-term goals with confidence.
At Grunden Financial Advisory, Inc., we specialize in helping PACCAR professionals weigh these options—not in a vacuum, but as part of a broader retirement strategy that includes your pension, Social Security, Medicare, and legacy goals. We don’t just explain the rules—we help you use them to your advantage.
Before you roll over your 401(k), let’s talk. You may have more options than you think.