Net Unrealized Appreciation (NUA): The P&G Employee Advantage

In retirement, Procter & Gamble (P&G) employees have the opportunity to take advantage of a specialized tax-planning technique known as Net Unrealized Appreciation. In this blog post post we break down the intricacies of this benefit and help you decide whether it’s right for you.

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What is NUA?

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The Net Unrealized Appreciation (NUA) strategy is a tax-advantaged way to handle company stock held within your 401(k) plan when you leave your job, such as retiring.

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Instead of rolling over the stock into an IRA, which would result in ordinary income tax rates applying to all future account distributions, NUA allows you to transfer the stock to a taxable brokerage account for more favorable tax treatment. Under this strategy, the cost basis of the stock is taxed as ordinary income in the year of transfer, but the appreciation (NUA) is taxed at the generally lower long-term capital gains rates when the stock is eventually sold.

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Why is NUA so popular among P&G Retirees?

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Prior to July 2025, Procter & Gamble made contributions to their employee’s Profit Sharing Trust (PST) with shares of Preferred stock (see this blog post on PSTs for more information). These shares came with a very low cost basis of $6.82 per share, which meant the difference between the cost basis and the current market value (the NUA) was substantial due to the strong performance of P&G stock over time.

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For P&G employees with a long tenure with the company, the opportunity to take advantage of the NUA strategy was, and still is, quite extraordinary. In fact, if you’ve been at P&G long enough and the cost basis is low, there may be some decent NUA opportunity involving common shares as well.

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However, for new employees, utilization of this strategy at retirement will likely fade over time. This is due to the fact that, beginning with the July 2025 profit sharing contribution, the PST will transition to a cash-only funding model. That cash will be used to purchase common stock, as there will be no more Preferred shares to be contributed.

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Implementing the NUA Strategy

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To take advantage of the Net Unrealized Appreciation (NUA) opportunity with P&G Preferred shares, you must follow a specific sequence of steps governed by IRS rules.

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First, you must trigger a qualifying event—such as separation from service, reaching age 59½, or retirement. In order to preserve the ability to execute the NUA strategy on Preferred shares, no distributions other than dividends can be taken from the PST account prior to a full distribution or rollover of the account. This full distribution or rollover must take place within one tax year.

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The Preferred shares, which typically have a low cost basis of $6.82 per share, are then transferred in-kind to a taxable brokerage account. The cost basis of these shares is taxed as ordinary income in the year of distribution. The appreciation immediately qualifies as long-term capital gain but only triggers a tax event if, and when, the shares are sold. Any further appreciation in the stock price after exercising the NUA will be subject to a 12-month holding period in order to qualify as long-term capital gains and benefit from the potentially more favorable tax rate.

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Implementing the NUA strategy can result in substantial tax savings, especially for employees in higher income brackets. NUA also provides an opportunity for additional flexibility around future tax planning, retirement income, and fulfilling charitable intent.

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Benefits of the NUA Strategy

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When comparing the NUA strategy for Preferred shares vs. processing a direct rollover of those dollars into an IRA, the tax benefits can be quite striking.

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If PST dollars end up in an IRA, any future distributions will be subject to ordinary tax rates at the federal, state, and potentially local level. However, by leveraging NUA, you can convert a portion of your retirement assets into a more tax-efficient form—paying ordinary income tax on only the original cost basis of your shares while the ‘unrealized appreciation’ is taxed later at long-term capital gains rates.

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This strategy can result in significant savings in the near term and offer flexibility in managing your tax liability over the long run. For example, creating a retirement income stream by selling highly appreciated shares of stock and paying long-term capital gains tax rates, may be more advantageous than pulling money out of an IRA and paying ordinary income tax rates.

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The NUA approach can also create tax efficiency for those who are charitably inclined. When gifting highly appreciated shares of P&G stock to a qualified 501(c)(3) charity, the giver avoids paying taxes on the gain and can itemize the gift on their Schedule A.

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For individuals and families who typically take the Standard Deduction year-over-year, bunching several years’ worth of gifting into one year using P&G stock can add more ‘tax bang’ to the ‘charitable buck’ by allowing them to itemize deductions in that condensed giving year. A Donor Advised Fund (DAF) is often a helpful tool for this strategy as it allows for contributions to be fully deducted in the year of the gift to the DAF, and also allows for gifting to your favorite charities to take place over time.

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Is the Net Unrealized Appreciation (NUA) strategy right for me?

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The NUA strategy isn’t one-size-fits-all, but for many P&G employees it can be a valuable part of a well-rounded retirement plan. The potential tax savings, flexibility for generating a retirement cashflow, and opportunities for charitable impact make NUA a compelling option. If you have highly appreciated preferred shares in your Profit Sharing Trust, and you're approaching a qualifying event like retirement or separation from service, it’s worth exploring.

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Timing and execution are critical, and at Wealthquest, our familiarity with P&G benefits make us seasoned guides for your retirement journey.

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Schedule a call to learn more about our services today.

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