Unlock Tax-Deferred Diversification: A 351 ETF Exchange is an Innovative Option for Investors in a Record-Setting Market, says Toews Asset Management
NEW YORK, Sept. 17, 2025 /PRNewswire/ -- Investors sitting on appreciated assets are seeding Exchange Traded Funds (ETFs) via a section 351 ETF Exchange, as they look to defer capital gains taxes, potentially keeping more assets invested and compounding for longer.
A 351 exchange is a strategic way for high net worth investors to transfer a diversified portfolio of assets, typically individual stocks, into a newly created Exchange Traded Fund (ETF) to preserve capital, manage risk, and keep investments positioned for potential growth—all without the immediate capital gains tax burden investors might fear.
"Finding avenues for tax efficiency, and resilience in all types of markets is paramount," says Phillip Toews, CEO and author of the new book, The Behavioral Portfolio®. "The idea behind the 351 ETF Exchange is to help investors get 'unstuck' from a tax perspective by optimizing their holdings while deferring potential taxes."
Potential Benefits of a 351 ETF Exchange
Using Section 351 of the Internal Revenue Code, this rule generally permits the transfer of highly appreciated assets to a newly formed ETF in exchange for ETF shares provided specific conditions are met.
- Non-Taxable Event: Investors can transfer appreciated assets without realizing immediate capital gains tax. Taxable events are deferred until the ETF shares are sold, allowing control over the tax timeline.
- Flexibility and Diversification: This strategy enables transition from a potentially less diversified portfolio into a professionally managed, well-diversified ETF. It allows for broader managed-risk market exposure, while making it easier to rebalance within the ETF structure.
"Behavioral finance teaches us that emotional decisions often lead to suboptimal financial outcomes," noted Toews. "A 351 ETF Exchange can ease the emotional burden of selling individual investments that have grown and carry a hefty tax bill by offering diversification without immediate tax consequences."
Risks and Pre-Exchange Portfolio Diversification Rules
To qualify for tax-deferred treatment under a Section 351 ETF Exchange, specific diversification rules for the contributed portfolio apply:
- No more than 25% of the portfolio value can be invested in securities from any single issuer.
- The top five issuer holdings must collectively account for less than 50% of the portfolio or the transaction will not qualify for tax-deferred treatment. Instead, the IRS will treat the transfer as a taxable event, and the investor must recognize any embedded capital gains in the contributed assets at the time of the transfer.
- Each ETF position is treated as a proportionate share of its underlying investments for diversification testing purposes.
Who May Benefit Most?
- Taxable accounts with large unrealized gains
- Portfolios in need of rebalancing because they are overweight in specific markets, sectors, or companies
- Those seeking portfolio diversification, liquidity, and control over the tax timeline
- Advisors prioritizing operational simplicity and tax efficiency
Attend "Master the 351 Exchange: Your Gateway to Tax-Deferred Diversification"
Join Toews' live webcast to learn more about the intricacies of a 351 ETF Exchange Tuesday, October 7th at 1 p.m. EDT. Register here: https://toewscorp.com/events/
About Phillip Toews:
Phillip Toews, is CEO, Portfolio Manager of Toews Asset Management, and author of "The Behavioral Portfolio®." Since 1994, his work has integrated behavioral principles into managed risk investment strategies that aim to prepare investors for all types of markets to grow and preserve wealth.
This press release is for informational purposes only and does not constitute an offer to sell or an offer to buy any securities. Investors should consult with their financial and tax advisors to determine if a 351 ETF Exchange is suitable for their individual circumstances. Investing involves risk, including the possible loss of principal. There is no guarantee that any investment strategy will be successful. 8301395 MK
Media Contact:
Kelly Ashton Bradley
Director of Marketing
Toews Asset Management
[email protected]
(800) 326-1950
SOURCE Toews Asset Management
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