What Is NUA? A Powerful Tax Strategy for PACCAR Employees

If you’re a long-time PACCAR employee, chances are you’ve built up a significant balance in your 401(k)—and a good portion of that may be in PACCAR stock. While most people think of 401(k) distributions as taxable income in retirement, PACCAR employees have access to a unique strategy that can offer significant tax savings: Net Unrealized Appreciation, or NUA. In this post, we’ll explain what NUA is, when you can use it, how it works, and why it could be one of the most valuable moves you make on your way to retirement.

What Is Net Unrealized Appreciation (NUA)?

NUA is a little-known but incredibly powerful IRS-approved tax strategy that applies to employer stock held inside a qualified retirement plan, like a 401(k). In simple terms, it allows you to move company stock out of your 401(k) and into a taxable brokerage account, but with different tax rules than a typical retirement withdrawal.

Here’s how it works:

• You pay ordinary income tax only on the cost basis of the PACCAR stock—the amount that was originally paid for the shares.
• The appreciation (the growth in value) is not taxed at ordinary income rates. Instead, it becomes eligible for long-term capital gains tax, which is often significantly lower.

Compare that to a typical IRA or 401(k) withdrawal, where every dollar is taxed as ordinary income. With NUA, you split the tax treatment, allowing you to potentially save thousands in t taxes—especially if the stock has appreciated significantly over time.

Who Qualifies for NUA?

Not every PACCAR employee will benefit from NUA, but many do. This strategy applies only to company provided stock held inside a 401(k). If you’ve accumulated PACCAR shares through your 401(k) plan, NUA is worth considering.

The key requirements for NUA eligibility include:

• You must be taking a lump-sum distribution of your entire 401(k) balance within a single tax year.
• The stock must be distributed in-kind—meaning it is transferred as actual shares, not sold within the 401(k).
• You must meet one of the following triggering events:
  • Separation from service (voluntary or involuntary)
  • Reaching age 59½
  • Disability (if applicable)
  • Death (NUA may still be used by heirs)

If these conditions are met, you can begin the process of shifting your PACCAR stock into a taxable account under the NUA rules.

Why Would I Use NUA Instead of a Rollover?

Most people, when retiring, simply roll their 401(k) into an IRA. But if you do that with your PACCAR stock, you lose the opportunity to use NUA altogether. Once the stock is inside an IRA, every future distribution is taxed as ordinary income—potentially at a rate as high as 24% or more.

By contrast, using NUA allows you to:

• Realize a lower tax bill on the appreciation
• Control the timing of when you sell the shares and realize gains
• Diversify your tax strategy, creating flexibility in retirement

Real World Insight: Tax Benefits of Using NUA

Let’s say Jenny, a 64-year-old PACCAR executive, has 5,000 shares of PACCAR stock in her 401(k), acquired at a cost basis of $35/share which is now worth $100/share. That’s a cost basis of $175,000 and appreciation of $325,000.

• With a typical rollover: She pays ordinary income tax on the entire $500,000 when she withdraws it over time.
• With NUA: She pays ordinary income tax on $175,000 now, and capital gains tax on the $325,000 later—only when she sells her PACCAR shares.

Jenny now has more control over her future income streams, can implement lower future RMDs, and achieve greater tax diversification leading to a reduction in her overall tax liability in retirement. We discuss these benefits in greater detail in our blog, NUA vs. IRA rollover: A Strategic Decision for PACCAR Employees.

Strategic Timing: When to Use NUA

One of the most powerful aspects of the NUA strategy is the timing. Done correctly, NUA can help you fund the early years of retirement with low-tax capital gains rather than fully taxable retirement withdrawals.

This can be especially useful if:

• You retire late in the year and have lower income in the upcoming tax year.
• You plan to delay Social Security or pension income, allowing you to keep your tax bracket low.
• You want to complete Roth conversions before Required Minimum Distributions (RMDs) begin at age 73 or 75.

By tapping NUA assets early, you preserve room in your lower tax brackets for other financial planning opportunities.

The Process: What’s Involved?

NUA is not automatic—and it’s not something to attempt without a clear plan. The steps must be followed carefully:

1. Verify Eligibility: You must experience a triggering event and take a full distribution within the same tax year.
2. Coordinate with Fidelity and Equiniti (EQ): These firms manage PACCAR’s plan and stock transfer services.
3. Determine Cost Basis: This step is critical—you need accurate records to establish your taxable income at distribution.
4. Distribute Shares In-Kind: The stock is moved into a taxable brokerage account in its current form (not sold).
5. Roll Over the Remaining 401(k): All non-stock assets are rolled into a traditional IRA to preserve tax deferral.
6. Plan for Future Sales: You can sell shares over time to manage your capital gains exposure.

Why It’s Not a DIY Move

NUA isn’t the right fit for everyone—and even when it is, the process can be nuanced. A misstep, like rolling your 401(k) into an IRA too soon or selling the PACCAR stock inside your 401(k) plan, can eliminate the NUA opportunity altogether. Additionally, this isn’t an all or none decision. You can, and should be, strategic in deciding how much of the PACCAR stock to withdrawal via NUA.

Working with a firm like Grunden Financial Advisory, Inc., who understands the specific steps required by Fidelity and Equiniti (EQ) and how to sequence income sources like pensions, 401(k) withdrawals, and Roth conversions—is critical. We discuss these important steps in more detail in our blog, Logistics of Carrying Out PACCAR Stock NUA.

Final Thoughts

The NUA strategy is one of the most compelling tax opportunities available to PACCAR employees—but it’s often misunderstood or missed entirely. If you’re approaching retirement and hold PACCAR stock in your 401(k), now is the time to explore whether NUA could work for you.

At Grunden Financial Advisory, Inc., we specialize in guiding PACCAR professionals through this process—combining deep technical knowledge with personalized, tax-aware retirement strategies.

Let’s talk before you retire. Because timing is everything.