Paychex is one of Rochester’s great homegrown companies, and many longtime employees own a lot of it.
The shares come through the 401(k)’s Paychex stock fund, the employee stock purchase plan and equity awards. That stock may have grown a great deal over the years. How you take it out of the 401(k) can decide whether that growth is taxed at ordinary income rates or capital gains rates.
Your Paychex plans
The 401(k) Incentive Retirement Plan
Pre-tax and Roth contributions from day one. Since January 1, 2026, the company match is 100% of the first 4% of eligible pay, after a year of service. Held at Fidelity.
The Paychex ESOP Stock Fund
An option inside the 401(k) that holds Paychex common stock.
Employee stock purchase plan
Lets employees buy Paychex shares through payroll.
Deferred compensation
A nonqualified plan for key employees, with its own payout elections.
The net unrealized appreciation rule
Normally, everything that comes out of a 401(k) is taxed as ordinary income. Company stock can be an exception.
Say you leave the company and take your whole account out in one year, moving the Paychex shares out as shares. You pay income tax only on what the plan originally paid for them. The growth above that, the net unrealized appreciation, is taxed at long-term capital gains rates when you sell, whenever that is.
| Roll everything to an IRA | Take Paychex shares out using NUA | |
|---|---|---|
| Paychex stock in the 401(k) | $400,000 | $400,000 |
| Original cost basis | $80,000 | $80,000 |
| Taxed as ordinary income | All $400,000, as you withdraw it | $80,000 now |
| Taxed at capital gains rates | Nothing | $320,000, when you sell |
These numbers are hypothetical. NUA isn’t right for everyone: it creates tax now on the cost basis, and if the basis is high relative to the value, the benefit is small. It also has strict rules about timing and taking the whole account in one tax year. Plan it with your CPA before you request anything.
- Tax due now on the cost basis
- $25,600
How much Paychex is too much?
Loyalty to a great company is natural, and many people have done well holding it.
But your paycheck, your bonus and possibly your retirement all depend on the same employer. Decide how much of your net worth you want riding on one stock, and diversify the rest on a schedule that manages taxes.
At retirement
- Before any rollover, find out the cost basis of your Paychex shares from Fidelity, and confirm the plan will distribute them to you as shares.
- Decide about NUA first. Then roll the rest of the 401(k) as you choose.
- If you leave in or after the year you turn 55, money left in the 401(k) can be withdrawn without the 10% penalty.
- Check your deferred compensation payout elections, which may be fixed.
- Plan sales of ESPP and other shares across tax years.
Bring these three documents
They answer most of the first questions, and they show what needs attention before any deadline.
1. Your 401(k) statement
Shows how many shares you hold in the Paychex ESOP Stock Fund and what the rest of the account is invested in.
2. The cost basis of your Paychex shares
Ask Fidelity, the plan’s recordkeeper. NUA is worth considering only if the basis is well below today’s value.
3. Your ESPP and equity award records
Purchase dates and prices, vesting schedules, and any deferred compensation elections.
How Morrowgate helps. Greg gets the cost basis and runs the NUA math against a straight rollover with your CPA. Then he plans how and when to diversify, using tax-aware selling and charitable gifts where they fit. Accounts are held in your name at Fidelity, with Schwab available.
Questions Paychex employees ask
What is net unrealized appreciation?
The growth in value of employer stock while it was held in your 401(k). Under IRS rules, it can be taxed at capital gains rates if the shares are distributed in kind as part of a qualifying lump-sum distribution.
Do I have to sell my Paychex stock to use NUA?
No. The shares move to a taxable brokerage account. You pay ordinary income tax on their cost basis then, and capital gains tax on the growth when you eventually sell.
Can I use NUA after rolling to an IRA?
No. Once company stock is rolled into an IRA, the NUA treatment is lost.
Is the Paychex 401(k) held at Fidelity?
Paychex’s plan filings list Fidelity as trustee and recordkeeper. Your statements will confirm it.
Where this guidance stops
This article is general education on Paychex retirement benefits and net unrealized appreciation: how the rules and the options generally work.
It is not tax, legal or investment advice, and nothing here is a recommendation for your situation. Rules change and outcomes turn on the facts, which is why a CPA and an attorney look at a family’s own numbers before anything is done.
Sources
- Paychex 401(k) Incentive Retirement Plan: Form 11-K for 2025, filed June 2026 (SEC)
- Paychex: Annual report, fiscal 2025, Note P employee benefit plans (SEC)
- IRS Publication 575: Pension and annuity income (net unrealized appreciation)