You left your old job. Now you want to move $30,000 from your old 401(k) into a Roth IRA. About 7% of that 401(k) — roughly $2,100 — is company stock. And that stock has dropped hard. Its current market value sits $25,000 below what you paid for it. So you wonder: when you convert, does the $2,100 of company stock get taxed differently from the rest? Maybe at a lower rate, or based on what you paid instead of what it's worth now?
Here's the short answer. No. When you convert cash from a 401(k) to a Roth IRA, the entire amount is taxed as ordinary income. That includes the slice that used to be company stock. The full $30,000 lands on your tax return as income, taxed at your regular rates.
The reason is simple. The stock got sold inside the plan and arrived in your Roth IRA as cash, not as actual shares. The special tax break for company stock — called Net Unrealized Appreciation, or NUA — only works when you take the actual shares out and move them to a regular taxable brokerage account. Convert to cash, and that door closes. Let's walk through exactly how this works.
The Basic Rule: 401(k) Withdrawals Are Ordinary Income
Money in a traditional 401(k) has never been taxed. You put it in before taxes were taken out, and it grew without tax along the way. So the government collects its share when the money comes out.
That tax comes at ordinary income rates. These are the same rates that apply to your paycheck. For 2026, a single filer pays 22% on taxable income between $50,401 and $105,700. A married couple filing jointly hits that same 22% bracket between $100,801 and $211,400.
A Roth conversion is just a special kind of withdrawal. Instead of spending the money, you move it into a Roth IRA. But the tax treatment is the same as any other distribution. You pulled $30,000 out of a traditional account. So you owe ordinary income tax on $30,000.
The 401(k) doesn't care what the money was invested in. Stocks, bonds, mutual funds, company stock — it's all the same once it's sold and converted to cash. The dollar amount is what gets taxed. Not the source.
What NUA Treatment Is and When It Could Apply
NUA stands for Net Unrealized Appreciation. It's a special tax rule built for one specific situation: company stock held inside an employer retirement plan.
Here's the idea. Say you bought company stock inside your 401(k) over the years. You paid $10,000 for it — that's your cost basis. Now it's worth $50,000. The $40,000 of growth is the "net unrealized appreciation." It's the gain that hasn't been taxed yet.
Normally, if you took that $50,000 out as cash, you'd pay ordinary income tax on the whole thing. But NUA offers a better deal. If you take the actual shares out of the plan and move them into a regular taxable brokerage account, the rules split the tax in two.
You pay ordinary income tax only on the cost basis — the $10,000 you originally paid. Then the $40,000 of appreciation gets taxed at long-term capital gains rates instead. Those rates are lower. For 2026, long-term capital gains top out at 15% for most people, and 20% only for high earners (single filers above $545,500). Compare that to ordinary rates that climb to 37%.
So NUA can save real money. But it only works under specific conditions. You have to take the company stock out as actual shares, in-kind, not as cash. The shares go to a taxable account, not an IRA. And you usually need a "lump-sum distribution" that empties the whole plan in one tax year, triggered by a qualifying event like leaving the job or turning 59½.
Why a Cash Conversion Forfeits NUA Treatment
This is the heart of the question. In your situation, the company stock got sold inside the plan. The proceeds arrived in your Roth IRA as cash. That single fact kills any chance at NUA treatment.
NUA requires the actual shares to leave the plan in-kind. "In-kind" means the shares themselves move — the same shares, transferred over, not sold and rebought. The moment the plan sells the stock and hands you cash, the appreciation gets locked into the cash value. There's no longer any "stock" to apply the special rate to.
So when you do a $30,000 cash conversion, the $2,100 that came from company stock is just $2,100 of cash. The tax system sees no difference between that and the other $27,900. All of it is ordinary income. There's no separate, lower rate hiding in there.
It's also worth knowing that NUA and Roth conversions don't mix anyway. NUA only applies to shares moved to a taxable brokerage account. A Roth IRA is not a taxable brokerage account. So even if you could somehow move the shares in-kind into the Roth, you still wouldn't get NUA treatment. The two strategies point in different directions.
The Depreciated Stock Angle: Why NUA Wouldn't Help You Here Anyway
Now for the detail that makes this case especially clear. Your company stock didn't go up. It went down — $25,000 below cost basis. That changes everything about whether NUA is even worth wanting.
Remember, NUA only helps when there's appreciation. The whole point is to move gains from ordinary income rates to lower capital gains rates. If the stock has lost value, there's no gain to shift. There's nothing for the special rate to work on.
Worse, NUA is built around cost basis. When you take shares in-kind, you pay ordinary income tax on the cost basis — what you originally paid. If your stock dropped below cost basis, that means you'd pay ordinary income tax on a number higher than the stock's current value. That's the opposite of helpful.
Let's put numbers on it. Suppose your company stock had a cost basis of $27,000 but is now worth only $2,100:
| Route | Amount taxed as ordinary income | Result |
|---|---|---|
| NUA (shares in-kind) | $27,000 cost basis | Tax on far more than the shares are worth |
| Cash conversion | $2,100 current value | Tax on the actual value — far less |
So in your case, the cash route isn't just simpler — it's also the cheaper one for that slice of money.
The lesson: NUA is a tool for appreciated company stock. For depreciated stock, it offers no benefit and can even backfire. Your gut feeling — that the lower value should mean lower tax — is right in spirit. But the way you get that lower tax is by converting the cash at its current value, which is exactly what's already happening.
If You Ever Do Want NUA Treatment
Maybe this stock recovers someday, or maybe you hold appreciated company stock in a different plan. If so, here's roughly how an NUA strategy works, so you know what to look for.
First, the timing matters. You generally need a lump-sum distribution. That means emptying the entire plan within a single tax year, after a triggering event such as separating from the employer, reaching age 59½, becoming disabled, or death. Partial moves usually break the lump-sum requirement.
Second, the stock has to come out in-kind. The plan transfers the actual shares to a taxable brokerage account in your name. It does not sell them. At the same time, you can roll the rest of the plan — the non-stock assets — into an IRA without tax.
Third, you'll owe ordinary income tax on the cost basis of the shares in the year you take them out. The appreciation isn't taxed until you later sell the shares, and then only at long-term capital gains rates.
Here are the main things to weigh before going down this path:
- How big is the appreciation? Bigger gains mean bigger NUA savings.
- What's your cost basis? A high basis means a high upfront ordinary-income tax bill.
- What's your tax bracket now versus later? NUA front-loads some tax today.
- Are you comfortable holding a concentrated position in one company's stock?
This is genuinely complex territory. One wrong step — like taking a partial distribution first — can disqualify the whole strategy. If you hold meaningfully appreciated company stock and think NUA might fit, it's worth a conversation with a tax advisor before you move anything. For your current case with depreciated stock and a cash conversion, though, there's nothing to second-guess. The straightforward route is the right one.
Run the Numbers on Your Conversion
For your situation, the math is clean. Your $30,000 conversion is $30,000 of ordinary income for 2026. The company stock portion gets no special treatment because it came over as cash. And because that stock had fallen below its cost basis, you wouldn't have wanted NUA treatment anyway.
The real question worth answering is how much that $30,000 of added income will cost you in tax — and whether converting it all in one year pushes you into a higher bracket. A $30,000 conversion stacks on top of your other income. If it spills from the 22% bracket into the 24% bracket for 2026, you might convert less this year and more next year to smooth the tax out.
That's exactly what the [Roth conversion calculator](/calculators/roth-conversion) is built for. Plug in your other income, your filing status, and the amount you want to convert. It shows you the tax cost, the bracket you'll land in, and how a smaller conversion now might save money over time. Run a few scenarios before you pull the trigger. The conversion itself is simple. Getting the timing and amount right is where the real savings live.