- Wealthy investors avoid capital gains taxes by using a 351 conversion to transfer profitable assets to an exchange-traded fund.
- The strategy seeds ETFs before launch, and the original investor defers capital gains until selling their shares.
- The volume of 351 exchanges for ETFs has increased in recent years, but there are still limited options, experts say.
After years of stock market growth, many investors are sitting on large profits in taxable accounts, which could trigger hefty capital gains when sold.
That bill can be significant for wealthy Americans, with a 20% top capital gains rate, plus 3.8% net investment income tax, depending on earnings.
One solution, known as a 351 conversion or exchange, allows higher earners to transform appreciated assets into shares of new exchange-traded funds. The strategy seeds ETFs before launch, and the original investor defers capital gains until selling their shares.
For some investors, the strategy is “like magic,” said certified financial planner David Haas, president of Cereus Financial Advisors in Franklin Lakes, New Jersey.
Source: https://www.cnbc.com/2025/08/21/wealthy-investors-etfs-capital-gains-taxes-.html