How wealthy investors use ETFs to avoid capital gains taxes

After years of stock market growth, many investors sit in large profits in taxable accounts, which can trigger heavy capital gains when sold.
This invoice may be important for rich Americans, 20% of the best capital gain rate and 3.8% Net Investment Income TaxDepending on earnings.
351 A solution known as transformation or change allows higher winners to convert appreciated assets into new stock market investment funds. The strategy defines capital gains until the launch of the eto and the original investor shares.
New Jersey, Franklin Lakes Cereus Financial Advisors Chairman David Haas certified financial planner David Haas, strategy for some investors, “like magic,” he said.
One of the benefits of ETF winding is that fund managers can accept assets before the launch and then re -balance without earnings.
Experts say that although 351 stock exchanges have increased for ETFs in recent years, there are still a relatively few public options.
Haas used 351 transformations for certain customers. But there are some disadvantages to consider. Here are the most important things you should know.
How does 351 transformation work for ETFs?
Many high winnings hold some investments to SMAs with customized portfolios with an active manager, subject to taxable accounts or taxable managers.
In the end, you cannot change investments without “less loss for harvest” and without capital gains.
Some of them told ETFs that they could solve 351 transformation problems.
The major financial planning companies that manage the Customers’ STAs can create a special ETF through 351 transformation. More recently, smaller companies or SMAs can join the public ETFs.
“I’m not surprised if we see more,” Sotiroff said.
However, minimum investments are still high. For example, Alpha architect It recommends a “minimum portfolio” of $ 1 million. Cambria fundsIn December 2024, the first 351 ETF transformation launch was also a minimum of $ 1 million for individuals.
351 Your transformation must be ‘diversified’
Experts say that although the taxes of capital earning taxes on embedded profits are attractive, ETFs say that 351 transformation may have certain rules.
“You can’t put a stock on the stock market and the tax has been postponed,” Ben Henry-Moreland, who is a CFP with CNBC, is a CFP. He said.
There is a solid Diversification Requirements To be entitled to postponed capital gains. Your transferred assets are “diversified” only in the following cases.
- A single stock or company is not more than 25% of contributing assets
- The five largest assets are not more than 50% of assets contributing
In addition, certain assets such as investment funds or alternative assets such as private capital or crypto currency may not be allowed for transfer, Henry-Moreland 351 Stock Exchange In March.
Sean Anthony Eddy | E+ | Getty Images
Your money may be ‘stuck’
Before completing the 351 transformation, you should weigh the pros and cons and how it fits your larger financial plan. You change assets in exchange for ETF shares that may be different from your target allocation.
CFP Charles Sachs, the chief investment manager of Imperio asset consultants in Florida, Florida, does not use the strategy because it can leave customers with less options.
“You can, but you’re stuck there,” Sachs said.
HAAS from Cereus Financial Advisors, although it is possible to transfer funds through another 351 transformation, “there are not many companies doing this.” And if you line, you can see capital gains.
“It is very important to think,” he said. “You must be happy with ETF.”




