Educational Guide

ETFs and 351 Exchanges

Quick Jump
Definitions
Diversification Rules
Benefits
FAQs

Definition

What is an ETF?

Exchange-Traded Funds (ETFs) are investment funds traded on stock exchanges, combining the benefits of mutual funds and stocks.

Key Features

Diversification

ETFs hold a basket of assets like stocks, bonds, or commodities which can provide an investor with instant diversification within a single investment

Transparency

Daily disclosure of holdings ensures portfolio visibility.

Liquidity

ETFs can be bought and sold anytime during market hours.

Tax Efficiency

Unique in-kind trading minimizes taxable events (e.g., no capital gains distributions, unlike mutual funds).

Definition

What is a 351 Exchange?

Section 351 of the U.S. Internal Revenue Code allows for tax-deferred transfers of securities into a new entity, such as an ETF, while meeting diversification rules.

Key Features

One-Time Event

This option is only available at the launch of a brand-new ETF.

Non-Taxable Event

Investments are simply transferred, not sold and repurchased, meaning no taxable gain or loss occurs.

Cost-Basis

Individual tax lots and purchase dates carryover into the ETF, preserving tax characteristics

Eligible Securities

  • Individual stocks and equity ETFs qualify.
  • Mutual funds are not eligible.

Benefits

of ETF via 351 Exchanges

Non-Taxable Event

  • Transfer appreciated assets without realizing capital gains.
  • Defer taxable events until the ETF shares are sold.
  • Investors only realize capital gains upon selling ETF shares.

Flexibility and Diversification

  • Transition an existing portfolio into a well-diversified portfolio.
  • Allows for advanced strategies and broader market exposure.
  • Provides enhanced rebalancing ease.

Operational Simplicity

  • Combine multiple accounts or securities into one efficient ETF.
  • Defer taxable events until the ETStreamlined reporting and management.

Diversification Rules for 351 Exchanges

1
No single holding can exceed 25% of the portfolio value.
2

The five largest holdings must collectively account for less than 50% of the portfolio value.

3

ETFs benefit from a “look-through” approach to underlying holdings for diversification.

For example, exchanging only SPY qualifies as diversified because SPY’s underlying holdings meet these rules.

Join Our Upcoming Webinar

Join our next 30-minute webinar to learn all about the ins and outs of the 351 exchange process, and how it can benefit you.

Register Now

FAQs

and other considerations
Ask a different question

Who benefits most from a 351 exchange?

  • Taxable accounts with significant unrealized gains.
  • Investors concentrated in specific markets, sectors, or companies.
  • Those seeking portfolio diversification while deferring taxes.
  • Investors prioritizing operational simplicity and tax efficiency.

Charitable Giving

Post-exchange, low-basis positions remain identifiable for optimal gifting strategies.

Do I still own the specific securities exchanged into the ETF?

No, those securities are exchanged for the new securities held within the ETF.

Example Portfolios

Portfolios that qualify for a 351 Exchange

  • 100% SPY ETF
  • 15+ stocks with generally equal weightings.
  • 10% AAPL, 10% NVDA and 80% assorted ETFs

Portfolios that do NOT qualify for a 351 Exchange

  • 100% AAPL
  • 50% TSLA, 25% AMZN and 25% SPY
  • Bitcoin-only portfolios

Disclosure

This communication is for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product or services. The content of this communication is provided solely for your personal use and shall not be deemed to provide access to any particular transaction or investment opportunity. Amplius Wealth Advisors does not intend the information in this communication to be investment advice, and the information presented in this communication should not be relied upon to make an investment decision. Past performance is not indicative of future results. Any third-party information contained herein was prepared by sources deemed to be reliable but is not guaranteed.  All opinions expressed by the participants are solely opinions and should not be relied upon as potential or actual results.  This information is not considered tax advice.  Please consult your tax advisor for any tax related advice.

Learn More

Questions about ETFs and 351 Exchanges? Schedule a quick call with an advisor to learn more.

Bespoke Advice. Amplified Experience.
Fiduciary Wealth Management in Philadelphia.

Follow us on social media
X-twitter Linkedin-in Facebook-f Instagram Youtube
How We Help
Company

Get news, insights and exclusive content from Amplius Wealth Advisors delivered to your inbox.

Copyright 2025 © Amplius Wealth Advisors. All Rights Reserved.

Website by Indigo Marketing Agency.