NUA Distribution at Fidelity: Step-by-Step Process

Fidelity administers retirement plans for millions of employees through Fidelity NetBenefits. If your 401(k) is held there and you have highly appreciated employer stock, here's exactly how the NUA election works within Fidelity's system — what to request, how to find your cost basis, and what the in-kind transfer looks like end to end. Not a substitute for professional guidance on your specific situation.

Why the recordkeeper matters for NUA

NUA requires an in-kind distribution of employer stock — the shares transfer out of your 401(k) to a taxable brokerage account without being sold. This is not a standard transaction. Most plan distributions are processed as cash or IRA rollovers. In-kind stock distributions require your recordkeeper — in this case Fidelity — to handle a physically different workflow: DTC-eligible share transfer, lot-level cost basis documentation, and 1099-R Box 6 population.

Fidelity's workplace retirement platform (NetBenefits) has the infrastructure to handle this correctly. But you must request it correctly, or Fidelity's default process will liquidate the stock and send you a check (or wire the cash to an IRA) — which permanently destroys your NUA election.

Step 1 — Find your employer stock cost basis in NetBenefits

Before calling, know your cost basis. This is the number that determines your NUA amount — and your tax bill at distribution.

• Log in to NetBenefits (netbenefits.com). Navigate to your plan account and find the investment positions section.
• Look for your employer stock holding. Fidelity typically displays both the current market value and the plan cost basis — the price the plan paid for the shares on your behalf. This is not your grant price or the market price on any particular date; it is the plan's actual purchase price per share, often a dollar-cost-averaged value over years of employer contributions.
• If cost basis is not visible in the online portal, call Fidelity's Workplace Investing line (the number on your statement) and ask specifically for "the plan cost basis of my employer stock" — not the market value, not the unrealized gain, but the cost basis per share for NUA purposes.
• Request the cost basis information in writing — ask Fidelity to mail or email you a statement showing the lot-level cost basis. You will need this when you file your taxes and when you verify the 1099-R Box 2a matches your basis.

Step 2 — Open a Fidelity taxable brokerage account

The in-kind stock must transfer to a taxable (non-IRA) brokerage account. You cannot put the stock into an IRA — doing so destroys NUA permanently.

• If you don't already have a Fidelity Individual brokerage account, open one before calling. The process is online and takes about 10 minutes.
• Using a Fidelity brokerage account as the receiving account is strongly preferred when the plan is held at Fidelity. An internal transfer within Fidelity eliminates DTC-transfer delays, reduces the chance of processing errors, and makes it easier for Fidelity's retirement distribution team to coordinate both legs (stock out, IRA rollover) in the same year.
• If you want to receive the shares at a different broker (Schwab, Vanguard, Merrill), that is possible — but you'll need the receiving broker's DTC participant number and your account number. Expect the process to take longer and require more coordination.
• Make sure the receiving account is open and funded (even a $0 balance is fine) before you call to initiate the distribution.

Step 3 — Call Fidelity Workplace Investing and use the right language

In-kind employer stock distributions are not self-service through the NetBenefits portal. You must call Fidelity's Workplace Investing line — the number on your plan statement or on the NetBenefits site under "Contact Us."

When you reach a representative, use these exact phrases:

• "I want to take a lump-sum distribution triggered by my separation from service [or age 59½ / disability / death of participant]."
• "I want to distribute the employer stock in-kind to my [Fidelity individual brokerage / external broker] account, without selling the shares."
• "I want to roll the remaining non-stock balance over to an IRA."
• "I am electing Net Unrealized Appreciation treatment on the employer stock per IRC § 402(e)(4)."

Using precise language — "lump-sum distribution," "in-kind," "NUA," "IRC § 402(e)(4)" — signals to the representative that this is a specialized transaction, not a standard withdrawal, and routes it to personnel trained on in-kind distributions.

Step 4 — Confirm the distribution instructions in writing

Before the call ends, ask Fidelity to confirm the distribution instructions via a written summary — either mailed or emailed. This should specify:

• That the employer stock is being distributed in-kind (shares, not cash)
• The receiving account details (Fidelity brokerage account number or external broker DTC/account)
• That the remaining plan balance is being rolled over to your IRA custodian of choice
• The triggering qualifying event (separation from service / age 59½ / etc.)
• The expected timeline for completion

Having written confirmation protects you if the distribution is processed incorrectly. Plans occasionally default shares to cash, or route everything to the IRA, or miss the same-year completion deadline. A paper trail allows you to dispute a processing error before the tax year closes.

Step 5 — Complete both legs before December 31

The lump-sum distribution requirement means your entire plan balance must leave the plan within a single calendar year. This means:

• The in-kind stock transfer to your taxable account and the IRA rollover of the remaining balance must both settle by December 31 of the same year.
• Stock transfers between Fidelity accounts typically settle in 1–3 business days. Rollovers to a receiving IRA custodian typically take 3–10 business days.
• If you initiate in late November or December, explicitly flag the same-year deadline to the distribution representative. Ask Fidelity to note the urgency and monitor both legs for completion before year-end.
• Check NetBenefits and your receiving accounts in the days following the request to confirm the transactions have settled. Don't assume everything was completed correctly — verify.

Step 6 — Review your 1099-R from Fidelity

Fidelity will issue a Form 1099-R in January of the year following the distribution. For an NUA election, certain boxes must be populated correctly:¹

If Box 6 is missing or Box 2a equals Box 1 (full FMV treated as taxable), Fidelity has processed the distribution incorrectly. Contact Fidelity to request a corrected 1099-R immediately. Do not file your return with an incorrect 1099-R — the IRS and your state will treat the entire distribution as ordinary income.

Empower and Vanguard at Work: the same process, different phone numbers

If your plan is held at Empower Retirement (the largest 401(k) recordkeeper by participant count after their acquisition of MassMutual and Prudential retirement) or Vanguard at Work, the NUA process is nearly identical:

• Find your plan cost basis in the recordkeeper's portal before calling
• Open a taxable brokerage account to receive the stock (using the same-family brokerage — Empower Personal Wealth or Vanguard Brokerage — simplifies the transfer)
• Call the Workplace/Retirement Services line and use the same "lump-sum distribution, in-kind, IRC § 402(e)(4) NUA election" language
• Request written confirmation and verify the 1099-R Box 6 after year-end

Empower's platform has seen increased NUA processing since consolidating multiple record-kept plans. Vanguard at Work handles NUA requests through its institutional services team. In both cases, front-line representatives may need to escalate the request — use the same clear language and don't accept default rollover processing without explicit pushback.

Common Fidelity-specific pitfalls

Stock sold automatically during distribution

If the plan has a "default to cash" setting on distributions, shares may be sold automatically when the distribution request is initiated. This converts your NUA election into a fully taxable ordinary income distribution. Always confirm "in-kind" explicitly and verify the transfer has been received as shares — not cash — before the tax year closes.

Partial rollover accidentally captures employer stock

When you request the non-stock balance to roll to an IRA, confirm that the rollover instruction covers only non-stock assets. If Fidelity includes any employer stock in the IRA rollover (even accidentally), that stock's NUA is permanently forfeited — you can't undo an IRA rollover to reclaim NUA treatment.²

Cost basis shown in NetBenefits is market value

Some plan statements display "average cost" which may reflect the current price rather than the acquisition cost. Confirm you are looking at the plan's cost basis — the price at which shares were acquired for your account — not the current market value or your "average cost" calculated by Fidelity's brokerage system.

Missing the December 31 deadline

If the IRA rollover leg is delayed and settles after December 31, the lump-sum distribution spans two tax years — which typically disqualifies the NUA election. Initiate early enough to leave 2–3 weeks of buffer before year-end.

After the transfer: what to do next

Once the stock is in your Fidelity taxable brokerage account:

• Don't sell immediately — the NUA amount automatically qualifies as long-term capital gains regardless of how long you hold the stock. But post-distribution gains on any additional appreciation will be short-term if you sell within a year of the distribution date. Holding for at least one year on the post-distribution gain portion maximizes tax efficiency.
• Review your post-NUA diversification strategy — see the post-NUA diversification guide for tranche selling, charitable strategies, and hold-for-step-up analysis.
• Consult a CPA or NUA-specialist advisor on the distribution year tax return — the 1099-R Box 6 must be reported correctly on Schedule D as a deemed long-term capital gain, and your tax software may not handle it automatically. See the tax reporting guide for how to enter this correctly.