Deciding Whether, and How Much, to Use NUA as a P&G Retiree

Most P&G retirees encounter net unrealized appreciation as a settled question. The preferred shares in the PST (Procter & Gamble Profit Sharing Trust) carry a fixed cost basis of $6.82 per share, the tax benefit looks obvious, and the conversation moves straight to execution. Much of the time that instinct is right. But the decision has more moving parts than the $6.82 figure suggests, and treating it as automatic skips the analysis that determines how much stock to elect, whether your common shares belong in the election, and occasionally whether NUA fits your situation at all.

When we run this analysis for a client, we weigh four variables: tax efficiency, asset mix, RMD reduction, and concentration risk. Tax efficiency is where the strategy starts. It is also where most NUA analysis stops, and the other three variables are usually what separate a right-sized election from a reflexive one. This article works through all four in the order we consider them. The mechanics are covered in Understanding NUA and the Frank Duke PST Distribution Strategy, and whether the rollback holds up legally is addressed in its own article. What follows assumes the mechanics and concentrates on the decision.

What NUA Costs Under the Frank Duke Rollback

One clarification before the four variables, because it changes how you should read all of them. In a standard NUA election, you pay ordinary income tax on the cost basis of the distributed shares in the year of the distribution. That is the version most articles describe, and it is accurate when the strategy is run straight. It is not how the strategy is typically executed for P&G retirees. Under the Frank Duke method, shares at least equal in value to the cost basis are rolled back to an IRA within the 60-day window, which offsets the ordinary income the distribution would otherwise create and brings the distribution-year tax on the basis to zero. Everything in this article assumes that execution.

The rollback does not make the strategy free. The shares that remain in your taxable account after the rollback carry a cost basis of essentially zero, which means every dollar you eventually sell is a taxable long-term gain. Stock like that is expensive to trim, and most households that hold it sell slowly or not at all. So the cost of NUA, executed this way, is not a tax bill in the distribution year. It is the obligation to carry a block of P&G stock in your taxable account whose full value is embedded gain. That cost belongs to the fourth variable, concentration risk, and it is the main thing the tax-efficiency math leaves out.

Variable One: Tax Efficiency

Tax efficiency is the reason NUA exists. IRC Section 402(e)(4) allows the appreciation in employer stock to be taxed at long-term capital gains rates, which top out at 20% federally, instead of the ordinary income rates that apply to everything else leaving a qualified account, which top out at 37%. What that means in practice is easiest to see on the preferred shares.

Consider a retiree holding 5,517 preferred shares at a $145 share price, just under $800,000 of stock inside the PST. Rolled to an IRA, every dollar of that $800,000 eventually comes out as ordinary income, in withdrawals you choose or in RMDs you don't. Distributed under NUA instead, the only ordinary income at the time of the distribution is the cost basis, $6.82 a share, $37,626 on the whole position. Run through the Frank Duke rollback, even that goes away, and the distribution-year tax is zero.

From that point forward, accessing the money means selling shares at long-term capital gains rates rather than taking ordinary-income withdrawals. On a $100,000 draw, that is the difference between about $15,000 of tax on a stock sale and about $32,000 on an IRA withdrawal, assuming a 15% capital gains rate against a 32% marginal ordinary rate.

The same mechanics apply to your common shares, and this is where the analysis gets more careful. Common share basis is set by the market price when the shares went in, and for many long-tenured employees it runs to half or more of today's value. Less of each common share is appreciation, so the election accomplishes less per share, which is why the preferred is usually the clear case and the common is the judgment call.

Most published NUA analysis ends here, with the rate comparison and a recommendation. In our work, this math is the qualifying round. The next three variables are where the decision gets made.

Variable Two: Asset Mix

The second variable is what the election does to the division of your wealth between tax-deferred and taxable accounts. A career P&G employee often arrives at retirement with nearly everything in qualified plans: the PST, the Savings Plan, an IRA from an earlier rollover. Money in those accounts is taxed as ordinary income on the way out and, eventually, on a required schedule. Money in a taxable account is taxed at capital gains rates, on your schedule, and drawing on it does not inflate your taxable income the way an IRA withdrawal does. Over a twenty-five or thirty-year retirement, a meaningful taxable balance is worth a great deal, and for most P&G retirees NUA is the largest single opportunity to create one.

The variable cuts both ways. A household that already holds a substantial taxable account has less to gain here. If two or three million dollars already sits in a brokerage account, moving another block of stock across often shifts the overall mix by five percentage points or less and changes the household's flexibility very little. In that situation the asset-mix argument for electing beyond the preferred, and sometimes for electing at all, weakens considerably. Two retirees with identical PSTs can score this variable in opposite directions because of what sits outside the plan, and both can be right.

Variable Three: RMD Reduction

The third variable is produced by the same action as the second. Moving stock out of the plan under NUA changes where your assets sit, and it also removes those dollars from the IRA balance that required minimum distributions are calculated on, beginning at age 73 for those born from 1951 through 1959 and at 75 for those born in 1960 or later. The two effects arrive together, but we evaluate them separately, because a household can need one and not the other.

The size of the effect is easy to underestimate. Roll the preferred position from the example to the IRA instead of electing it, and the full $800,000 joins the balance your future RMDs are calculated on. Growing at 6% for fifteen years, it becomes roughly $1.9 million of additional RMD base, and the first required distribution against it, using the age-75 divisor of 24.6, is about $78,000 of ordinary income in that year alone. The required amount then grows each year as the divisor shrinks. Elect the preferred and nearly all of that stays out of the calculation for good; only the $37,626 of basis returns to the IRA.

Whether the relief matters is a question about your spending. If your retirement will draw the IRA down at roughly the pace the required distributions would force, the RMDs were never the problem. You would have withdrawn the money and paid ordinary tax on it because you live on it, and in that case the reduction is close to cosmetic while still costing you years of tax deferral. If instead your required distributions would substantially exceed what you plan to spend, forcing income into brackets you would otherwise avoid, this variable becomes one of the strongest reasons to elect. The same balance sheet can make RMD reduction decisive or nearly irrelevant depending on the spending underneath it.

Variable Four: Concentration Risk

The fourth variable is the one that most often sets the ceiling on the election, and it needs to be measured correctly before it can be weighed.

Measured correctly means counting your whole P&G footprint. Direct shares in the PST and in brokerage are the visible part. Many retirees also carry several years of unsettled equity compensation, stock options, RSUs, and PSP units that will convert to cash or stock well after separation. That pipeline usually shrinks total exposure on its own over the following decade, which means the NUA decision is really setting the size of the permanent P&G position that remains after the equity comp runs off.

Then there is the difference in how the two accounts let you manage the position. Inside an IRA, you can sell P&G stock the week after the rollover and diversify with no tax consequence; the concentration is one decision away from gone. In the taxable account, the shares carry a zero basis after the rollback, so selling everything at once means recognizing the entire gain in a single year, and almost nobody chooses that. In practice, you sell on a schedule, spread across years and timed to fund lifestyle spending or specific goals, which means the position you elect is one you should expect to hold and manage rather than exit. That does not make the shares idle. Zero-basis stock is well suited to charitable giving, since a donor-advised fund receives it at full market value with the gain never recognized, a pairing we detail in our NUA and donor-advised fund case study. The shares can be gifted to family members or pledged as collateral on a securities-backed line of credit, and the quarterly dividend now arrives in an account you can spend from instead of accumulating inside the IRA.

The practical question is size. For many career P&G retirees the PST is the largest asset they own and P&G stock is the largest holding inside it. Depending on what else the household owns, electing the preferred alone can leave 15% or 20% of a liquid portfolio in P&G, and electing the common as well can push the figure to a third or, where nearly everything sits in the plan, toward half. A position at that scale is not automatically wrong, but it is not one you drift out of. It calls for a deliberate multi-year plan to bring it down to a level you choose. None of this is an argument against owning P&G stock. Many of the families we work with spent twenty-five or thirty years building wealth in the company, the loyalty is real, and we do not treat it as a bias to be corrected. Our position is narrower: the size of the P&G holding you carry into retirement should be a decision you make, not a byproduct of a full election you did not examine.

How the Four Variables Come Together

In practice the election resolves into three shapes: roll everything to the IRA and skip NUA, elect the preferred only, or elect the preferred plus some or all of the common. Because the plan permits selection at the lot level, the third path is adjustable rather than all-or-nothing. What each path does is structural. How much each effect matters is what the four variables, read against your spending, determine.

• Roll everything to the IRA: no NUA converted to capital-gain treatment, no shift toward taxable, the largest future RMD base, no durable P&G added.

• Elect the preferred only: most of the NUA converted, a meaningful shift toward taxable, a reduced RMD base, a moderate durable P&G position.

• Elect the preferred plus common: all of the NUA converted, the largest shift toward taxable, the smallest RMD base, the most durable P&G.

Which variable ends up deciding the question changes from household to household, and two recent analyses show how differently the same framework can resolve. Figures are rounded and identifying details changed.

The first household came to the decision with more than $3 million already in a taxable brokerage account. The asset-mix variable was close to settled before we started: the preferred election would move their qualified-to-taxable split by only about five percentage points, so the flexibility argument carried little weight. What remained was RMD relief against concentration tolerance. Electing the preferred alone removed roughly $40,000 a year of future required distributions, kept the P&G position at a size they were comfortable carrying alongside equity compensation still settling for years, and left the common in the IRA. Electing the common as well was available, but the additional benefit was incremental against concentration they did not want.

The second household was built almost in reverse: nearly $2 million of P&G stock inside the PST and roughly three-quarters of their wealth in qualified accounts. For them, asset mix and tax efficiency led. Electing both the preferred and the common moved more than $1 million into the taxable account at zero distribution-year tax, shifted their overall mix from about 75/25 qualified-to-taxable toward 60/40, and, paired with diversifying the shares that rolled back to the IRA, cut their total P&G exposure roughly in half.

Both households ran the same four variables and came out in different places, and neither answer was wrong. There is a third outcome as well. Some households already hold substantial taxable assets and expect their spending to draw the IRA down at roughly the pace required distributions would force anyway. If they also have little interest in carrying a stock position that is expensive to sell, even the preferred election adds little, and rolling everything to the IRA is a reasonable choice.

Across the households we see, the preferred usually clears the bar, the common is the marginal call that more often than not stays in the IRA, and electing everything is the least common outcome. The four variables are how we sort out where you land.

What This Means for You

The $6.82 basis is where the analysis starts. It is not the analysis. Whether NUA earns a place in your retirement, and on how much of your stock, comes down to how the four variables read for your household: how much of each lot is appreciation rather than basis, what the shift does to your taxable flexibility, whether the RMD relief is real money or a rounding error against your spending, and how much permanent P&G you are willing to carry. The Frank Duke rollback is what makes the answer adjustable, so the outcome can be a quantity rather than a yes or no.

We run this analysis alongside your CPA, because the distribution year touches the rest of the return. The narrower question of which specific shares to elect, preferred, common, or a blend of lots, has enough moving parts that it deserves its own analysis. The summary we would offer going in: the preferred usually earns its place, nothing past the preferred should be assumed, and occasionally the right answer is none at all.

Frequently Asked Questions

Is NUA always worth it for P&G retirees?

No. On the low-basis preferred shares it usually is, but not without exception. The answer depends on four variables weighed together: the tax efficiency of each lot, the shift in your taxable and tax-deferred mix, the reduction in future RMDs, and the concentration you take on. Households with large existing taxable accounts and spending that will absorb their RMDs sometimes conclude that even the preferred election adds little.

Do I owe a large tax bill in the year of the distribution?

Under a standard NUA election, yes: the cost basis of the distributed shares is taxed as ordinary income that year. Under the Frank Duke rollback, shares at least equal to the basis are returned to an IRA within 60 days, which offsets that ordinary income. The tradeoff is that the retained shares carry essentially no basis, so their full value is taxed as long-term gain whenever you sell.

Should I elect NUA on my common shares too, or only the preferred?

The preferred, at the fixed $6.82 basis, is almost entirely appreciation, so nearly the full value benefits from capital-gains treatment. Common share basis is set by market prices at contribution and often runs to half or more of today's value, so each common share accomplishes less. Whether the common election works depends on your asset mix, your RMD picture, and your verified per-lot basis.

Does NUA reduce my required minimum distributions enough to matter?

It can. Stock elected under NUA leaves the IRA base that RMDs are calculated on, and on a large low-basis position that can remove tens of thousands of dollars of forced ordinary income per year. The relief only has value if you would not have spent those distributions anyway.

If I already have a large taxable account, is NUA still worth it?

Often less than the headline math suggests. A significant part of NUA's value is creating taxable flexibility where little exists. If that account is already built, the election moves your overall mix only a few points, and the case for electing beyond the preferred, and occasionally for electing at all, weakens.

I'm retiring before 59½. Does the distribution trigger a penalty?

If you separate from P&G in or after the year you turn 55, the Rule of 55 under IRC Section 72(t)(2)(A)(v) waives the 10% penalty on the cost-basis portion. The NUA portion carries no early-withdrawal penalty regardless of age.

Sources & Verification

The tax framework in this article rests on IRC Section 402(e)(4) (net unrealized appreciation) and Section 72(t)(2)(A)(v) (the separation-at-55 penalty exception). RMD ages reflect SECURE 2.0. P&G plan specifics, including the fixed $6.82 preferred cost basis, reflect P&G plan documents and our work with PST distributions. Verify your own share counts and per-lot basis against your plan statement, or with P&G U.S. Benefits Services at 1-888-627-7472, option 1.

Disclaimer: The information in this article is for educational purposes only and is not intended as personalized financial, investment, tax, or legal advice. The strategies discussed 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. Past performance does not guarantee future results, and all investments involve risks, including the potential loss of principal. Tax laws and regulations may change, potentially affecting the strategies described; this content reflects laws as of July 7, 2026. The plan rules described reflect P&G plan details as understood by Vaultis Private Wealth and may change; refer to official P&G plan 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.