What is false about the election of net unrealized appreciation (NUA) on a stock sale?

The choice stating that net unrealized appreciation (NUA) is taxed as ordinary income at the time of distribution is false because, under specific conditions, the NUA is not taxed as ordinary income when the stock is distributed from the retirement account. Instead, the NUA portion is taxed as a capital gain when the stock is eventually sold, which generally provides a more favorable tax rate compared to ordinary income.

When an individual elects NUA upon taking a distribution of employer stock from a qualified retirement plan, they can separate the appreciation on the stock from the original investment amount. The original investment (basis) is taxed as ordinary income at the time of distribution, while any gain above that basis—known as the NUA—is taxed as a capital gain when the stock is sold, potentially benefiting from lower tax rates.

Recognizing this distinction in taxation is crucial for individuals considering distributions from a retirement account that includes employer stock, as it can lead to significant tax savings.