Wealthy Investors Utilize ETFs to Avoid Capital Gains Taxes, Advisor Claims It's 'Like Magic'

Capital Gains Tax Concerns: Investors with large profits in taxable accounts face significant capital gains taxes, particularly wealthy Americans who may incur a 20% rate plus an additional 3.8% tax on investment income.

351 Conversion Strategy: The 351 conversion allows high earners to defer capital gains by exchanging appreciated assets for shares in newly launched exchange-traded funds (ETFs), which can be beneficial but comes with specific rules and requirements.

Benefits and Downsides of SMAs: Separately managed accounts (SMAs) offer tax-loss harvesting benefits, but as investments grow, opportunities for offsetting gains diminish, making 351 conversions to ETFs a potential solution for some investors.

Investment Minimums and Limitations: While the use of 351 conversions is increasing, they often require high minimum investments (around $1 million), and strict diversification rules apply, limiting the types of assets that can be transferred.