The Net Unrealized Appreciation election on your CSC stock fund, now held as DXC Technology shares inside the DXC Technology Matched Asset Plan, lets you pay ordinary income tax on only the original cost basis of the shares and long-term capital gains rates on the decades of appreciation, but only if you transfer the shares in-kind to a taxable brokerage account and empty the rest of the plan in the same tax year following a qualifying triggering event. Ordinary income rates top out at 37% in 2026, while long-term capital gains rates run 0%, 15%, or 20%, so the savings on a heavily appreciated position can reach tens of thousands of dollars.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 20262Internal Revenue Service. Topic No. 409 Capital Gains and Losses One wrong move on the distribution mechanics permanently voids the election, with no second chance until a new triggering event occurs.
The CSC common stock in the old Computer Sciences Corporation plan converted share-for-share into DXC Technology common stock in April 2017, when Hewlett Packard Enterprise merged its Enterprise Services business with CSC.3Hewlett Packard Enterprise. Hewlett Packard Enterprise Completes Spin-off and Merger of its Enterprise Services Business with CSC4U.S. Securities and Exchange Commission. DXC Technology Matched Asset Plan Your cost basis history carried through that conversion, which is why long-tenured employees often have a large gap between what the plan originally paid for the shares and what they are worth today. Ask your plan administrator to confirm the cost basis in writing before you plan anything else, because every calculation below depends on that number.
How the NUA Tax Break Works
Under normal rules, every dollar that comes out of a traditional 401(k) is taxed as ordinary income when you withdraw it, whether directly from the plan or later from a rollover IRA. The tax code carves out an exception for employer securities: when you take a qualifying lump-sum distribution and receive the stock in-kind, only the plan’s cost basis in those shares is treated as ordinary income in the year of distribution. The appreciation built up inside the plan (the NUA) is not taxed until you sell the shares, and when you do sell, that portion is taxed at long-term capital gains rates regardless of how long you actually held the stock after distribution.5Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees Trust
A concrete example. Say your DXC shares have a cost basis of $40,000 and a current market value of $200,000. Roll everything into an IRA and eventually all $200,000 comes out as ordinary income. Use the NUA election and you pay ordinary income tax on the $40,000 cost basis in the year of distribution, and the $160,000 of appreciation is taxed at long-term capital gains rates when you sell. At a 15% capital gains rate, the appreciation costs $24,000 in tax; at a 37% ordinary rate the same appreciation would cost $59,200. Any further growth after the shares land in your brokerage account is taxed under normal capital gains rules, short-term if you sell within a year and long-term after that.
Qualifying for the Election
Three requirements all have to be met, and missing any one of them wipes out the benefit entirely.
A qualifying triggering event. The tax code recognizes four: separation from service (retirement, resignation, or termination, and only for common-law employees), reaching age 59½, death, or total and permanent disability.5Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees Trust Beneficiaries can execute the election after death on the decedent’s behalf.
A lump-sum distribution. Your entire balance in all of the employer’s qualified plans of the same type must leave the plan within a single tax year.6Internal Revenue Service. Topic No. 412, Lump-Sum Distributions Not just the stock fund. Not just the 401(k). Every plan of that kind, since the IRS aggregates plans of the same type.
An in-kind transfer. The actual shares must move from the plan to your taxable brokerage account. Selling the stock inside the plan and taking cash breaks the election.
The Distribution Trap That Voids NUA
This is where the election most often dies, and the damage cannot be undone without a fresh triggering event. Once a triggering event occurs, the very first distribution you take after it sets your NUA distribution year. If any withdrawal happens in a year and the full lump-sum distribution does not finish by December 31 of that same year, the lump-sum test fails and the NUA opportunity closes.
The classic scenario: you retire in June and pull a small distribution in August to cover expenses. That August withdrawal makes the current year your first post-triggering-event distribution year. If the rest of the balance does not leave the plan by December 31, the election is gone. A required minimum distribution taken after retirement creates the same problem. The RMD counts toward the year’s distribution requirement, but if everything else stays in the plan past year-end, the lump-sum test still fails.
Plan the sequence with your administrator before taking any withdrawal at all after the triggering event. The safest pattern is to leave the account untouched, set up the receiving brokerage account and IRA in advance, and then move the whole balance out inside one calendar year with no partial withdrawals ahead of it.
Executing the Split Distribution
A proper NUA distribution splits the plan balance into two streams in the same tax year. The DXC shares transfer in-kind to a taxable brokerage account. Everything else in the plan (mutual funds, stable value, cash) rolls over to a traditional IRA and keeps its tax-deferred status.5Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees Trust Both transfers must complete within the same tax year.
Do not roll the employer stock into an IRA. The moment DXC shares enter an IRA, the NUA benefit is destroyed permanently. Every dollar of that appreciation will then come out as ordinary income when withdrawn.
Your plan administrator handles the in-kind stock transfer, liquidates the non-stock holdings as needed, and processes the IRA rollover. At tax time you will receive a Form 1099-R with the NUA amount reported in Box 6, separate from the taxable cost basis.7Internal Revenue Service. Instructions for Forms 1099-R and 5498 The cost basis appears in the taxable amount, while the NUA is included in Box 1 but excluded from Box 2a. Keep that 1099-R permanently. It is your proof of NUA treatment when you eventually sell the shares.
Once the stock arrives in the brokerage account, confirm the cost basis was recorded correctly on the receiving side. Brokerage firms do not always receive accurate basis information from plan administrators during in-kind transfers, and correcting it years later is much harder than fixing it on day one.
Early Withdrawal Penalty and the Rule of 55
If you take the NUA distribution before age 59½, the 10% early withdrawal penalty applies to the cost basis portion.8Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions The NUA portion itself is not subject to the penalty, because it is excluded from gross income at distribution under the tax code, and the 10% penalty only reaches amounts included in taxable income.5Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees Trust
If you separate from service during or after the year you turn 55, distributions from that employer’s plan are exempt from the 10% penalty, including the cost basis portion of an NUA distribution.9Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts This is the Rule of 55. It applies only to the plan of the employer you are leaving, not to IRAs and not to prior employers’ plans. The non-stock portion you roll into an IRA loses this protection, so if you may need to draw on that money between 55 and 59½, factor that into the rollover decision.
When NUA Is the Wrong Move
The election is not automatically right for every employee holding CSC-legacy stock. Two situations argue against it.
If your cost basis is high relative to the current market value, the benefit is small. You would be paying ordinary income tax on a large basis for a modest amount of capital gains savings. A straight IRA rollover with gradual withdrawals over many years can produce a lower lifetime tax bill in that situation. As a rough screen, if the NUA is less than half the stock’s total value, run the numbers before committing.
The bracket problem also matters. Recognizing the full cost basis as ordinary income in a single year can push you from a 12% or 22% bracket into 32% or higher for that year. Spreading IRA withdrawals across a decade or more may keep you in a lower marginal rate throughout retirement. NUA works best when the appreciation-to-basis ratio is high and the cost basis recognition does not dramatically shift your marginal rate.
The 3.8% Net Investment Income Tax is worth a note for high earners. The NUA portion is treated as a distribution from a qualified plan for NIIT purposes and is excluded from net investment income, but any appreciation that accrues after the shares land in your brokerage account is regular capital gain and is fully exposed to the 3.8% surtax once your modified AGI exceeds $200,000 single or $250,000 married filing jointly.10Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
Choosing the Tax Year
Because the cost basis lands on your return as ordinary income, pick a year where your other income is low. For most retirees, the first full calendar year after leaving the company is ideal: salary has stopped, but Social Security and required minimum distributions have not yet started. If you use the age 59½ trigger while still working, your salary stacks on top of the cost basis recognition, which can erode the benefit substantially.
Set up the receiving brokerage account and IRA months in advance and confirm the administrator’s processing timeline. A distribution initiated in December that slips into January splits the lump sum across two tax years and disqualifies the election. Build a cushion into the schedule.
Estate Planning Consequence
NUA shares held in a taxable brokerage account at your death do not receive a full stepped-up basis. The NUA portion carries over, and your heirs will owe long-term capital gains tax on that amount when they sell. Any post-distribution appreciation does receive the step-up, so part of the inherited stock is stepped up and part is not.
If leaving wealth to heirs is a priority and your time horizon is long, this is worth weighing carefully. Rolling the stock into an IRA and letting heirs take inherited IRA distributions, generally spread over 10 years for most non-spouse beneficiaries under current rules, can produce a better after-tax outcome for the family in some cases. The right answer depends on the size of the NUA, the heirs’ tax brackets, and how long you expect to hold the shares.