The Net Unrealized Appreciation Opportunity for P&G Employees
/As a Procter & Gamble (P&G) employee, you’ve earned a unique benefits package through years of service at a company with a rich legacy. One standout opportunity within this package is Net Unrealized Appreciation (NUA)—a tax strategy that could significantly reduce your tax burden and maximize retirement savings. This blog explores how NUA works with P&G’s Profit Sharing Trust (PST), particularly its preferred shares, offering a powerful tool for your retirement planning.
What Is Net Unrealized Appreciation? Net Unrealized Appreciation (NUA) is the growth in value of employer stock—like P&G shares—held in a tax-deferred retirement account, such as the PST. When you retire or leave P&G, NUA allows you to potentially benefit from favorable tax treatment by shifting this appreciation from ordinary income to lower long-term capital gains rates.
The P&G Profit Sharing Trust Advantage: P&G’s PST stands out as a retirement vehicle, blending company contributions of common and preferred shares. The preferred shares, with a low cost basis of $6.82 per share, are especially valuable for NUA. Though P&G stopped contributing preferred shares in 2024, those accumulated earlier remain a key asset, amplifying the tax-saving potential of this strategy.
How NUA Works Under the Tax Code
The NUA strategy hinges on IRS rules that favor employer securities distributed from qualified plans like the PST. Here’s how it unfolds:
Lump-Sum Distribution: To qualify, you must take a full PST distribution within one tax year, triggered by separation, reaching age 59½, or death (IRC Section 402(e)(4)).
Cost Basis Taxation: The stock’s cost basis—$6.82 per share for preferred shares—is taxed as ordinary income in the distribution year (if no tax-minimizing strategy is implemented), reported on Form 1099-R.
NUA Taxation: The appreciation (market value minus cost basis) is deferred and taxed at long-term capital gains rates when sold, regardless of holding period post-distribution.
Post-Distribution Gains: Any further growth after distribution is taxed as short- or long-term capital gains, based on how long you hold the shares.
Penalty Note: If under 59½, the cost basis incurs a 10% early withdrawal penalty (though strategies like the Duke Rollback or DAF can be considered to avoid this), but the NUA portion is exempt.
These tax nuances make NUA a compelling option for P&G employees with significant stock appreciation.
Applying NUA at P&G
Here’s how P&G employees can use NUA:
Take a Lump-Sum Distribution: Withdraw your entire PST balance in one tax year.
Transfer Preferred Shares: Move these shares to a taxable brokerage account.
Pay Tax on Cost Basis: Ordinary income tax applies only to the $6.82 per share basis (if no tax-minimizing strategy is implemented).
Defer NUA Taxes: The appreciation remains untaxed until you sell.
Sell and Save: When sold, the NUA is taxed at long-term capital gains rates—often lower than ordinary rates.
Tax Benefits of NUA
Lower Rates: Long-term capital gains rates (typically 15-20%) can save you money compared to ordinary income rates (up to 37%), especially in higher brackets.
Tax Deferral: Delaying tax on the NUA gives you control over when to realize the gain, enhancing flexibility.
Key Considerations
NUA isn’t a one-size-fits-all solution. Weigh these factors:
Age: Under 59½? The cost basis faces a 10% penalty—plan alternative income sources.
Financial Picture: NUA shines brightest within a broader retirement strategy, not in isolation.
Tax Rate Risks: Future tax law changes could alter its advantages—timing matters.
Complexity: Precise execution is critical; mistimed distributions risk higher taxes.
Why It Matters for P&G Employees
With preferred shares’ low $6.82 cost basis, NUA offers a rare chance to unlock PST value efficiently. Optional strategies like the Duke Rollback or charitable giving can enhance NUA’s benefits. It’s a complex strategy, but when paired with careful planning, it can transform your P&G stock into a tax-efficient retirement asset.
If you’re nearing retirement or planning to leave P&G, evaluating NUA is a smart step. At Vaultis Private Wealth, we specialize in P&G’s unique benefits, guiding employees through strategies like NUA to optimize their financial future. Contact us for a complimentary consultation to see if NUA fits your goals.
Disclosures:
The information in this article is for educational purposes only and is not intended as personalized investment, tax, or legal advice. The Net Unrealized Appreciation (NUA) strategy may not be suitable for everyone, as individual financial goals, risk tolerance, and circumstances differ. Consult a qualified financial advisor, tax professional, or legal advisor before acting to evaluate your specific situation and determine if this strategy fits your needs. Tax laws and regulations are complex and may change, potentially affecting the strategies described. This content reflects tax laws as of March 17, 2025, and future changes could impact outcomes. Past performance does not guarantee future results. All investments involve risks, including the potential loss of principal, and values may fluctuate. The description of the P&G Profit Sharing Trust (PST) reflects current plan details as understood by Vaultis Private Wealth and may change. Refer to official PST documents for the most accurate, up-to-date information. Vaultis Private Wealth does not guarantee the accuracy, completeness, or outcome of this information and is not affiliated with Procter & Gamble, which does not endorse this content. Verify the qualifications of any advisor before engaging their services.