There’s a 70‑year‑old section of the tax code that lets you transition your messy portfolio into a clean ETF without triggering gains.

Think 1031 exchange, but for your stock portfolio.

It’s called a 351 exchange.

You can contribute your existing stocks/ETFs into the seeding of a new ETF
and receive ETF shares without triggering capital gains tax,
as long as the diversification rules are met.

This can be especially useful if you:

• Have a mess of ETFs and individual stocks with no clear structure
• Are sitting on concentrated positions with large embedded gains
• Own legacy funds with high fees or exposures you no longer want

Instead of:

❌ Selling positions
❌ Realizing large capital gains
❌ Cutting a large check to the government

You may be able to exchange those holdings for shares of a diversified ETF through a Section 351 structure.

There are diversification requirements to be aware of:

• No single position can exceed 25% of the contributed portfolio value
• Positions representing more than 5% of the portfolio generally cannot exceed 50% of the total value when combined
• Existing ETF holdings often require additional analysis because diversification testing may consider the underlying holdings

For investors with significant embedded gains, avoiding an immediate 20%–30% tax drag while repositioning a portfolio can dramatically increase the amount of capital that stays invested and working on their behalf.