If you’ve spent years building your retirement savings through the WEC Energy Group retirement plan, there is a tax strategy that deserves a closer look as you approach retirement or leave the company: Net Unrealized Appreciation (NUA)

While NUA isn’t the right fit for everyone, it can create significant tax savings for employees who have accumulated a material amount of WEC Energy Group stock inside their 401(k). Understanding how it works before making rollover decisions could save thousands of dollars in taxes.

How Does the Strategy Work?

To qualify for NUA treatment, several IRS rules must be satisfied. While the specifics can vary, most situations follow a similar process:

1. Experience a qualifying event such as retirement, separation from service, reaching age 59 ½, disability, or death
2. Take a qualifying lump-sum distribution from the 401(k) within a single tax year
3. Transfer the WEC Energy Group stock in-kind into a taxable brokerage account rather than rolling those shares into an IRA
4. Roll the remaining non-stock retirement assets into an IRA to continue tax deferral

Once completed, generally ordinary income tax is due only on the stock’s cost basis. The appreciation remains eligible for long-term capital gains treatment when the shares are eventually sold.

A Simple Example

Suppose a WEC Energy Group employee has a $1,000,000 401(k) balance.

Within that account, the WEC stock is worth $400,000. The original cost basis is $100,000, meaning there is $300,000 of appreciation. With a properly executed NUA strategy:

• The $100,000 cost basis is taxed as ordinary income when the shares are distributed
• The $300,000 of appreciation may qualify for long-term capital gains treatment when the shares are eventually sold
• The remaining $600,000 of non-company stock assets are generally rolled to an IRA to maintain tax deferral

Without NUA, if the full $1,000,000 were rolled into the IRA, future withdrawals would generally be taxed as ordinary income. For some retirees, that could mean paying tax rates as high as 37%, or potentially even higher if future tax laws change.

Important Things to Keep in Mind

NUA is a complex retirement tax strategy, and mistakes can permanently eliminate the opportunity. Before making any decisions, consider the following:

• NUA only applies to employer stock held inside a qualified retirement plan
• The IRS lump-sum distribution rules must be followed carefully
• The strategy is often most valuable when the stock has significant appreciation relative to the cost basis
• Diversification remains important. Tax savings alone should not drive investment decisions.

This material is provided for informational and educational purposes only and should not be construed as personalized investment, legal, or tax advice. Information presented is general in nature and may not be appropriate for all investors. Net Unrealized Appreciation (NUA) is a complex strategy subject to specific IRS rules, and its suitability depends on each individual’s unique financial circumstances. You are encouraged to consult a qualified professional before implementing any strategy discussed herein. All investments involve risk, including the possible loss of principal. Past performance is no guarantee of future results.