How To Move Appreciated Brokerage Accounts Without Huge Taxes
Episode 43
How To Move Appreciated Brokerage Accounts Without Huge Taxes
Published on July 15th, 2026
Episode Summary
Episode 43 of Retirement Tax Matters addresses the technical and psychological hurdles that high-net-worth retirees face when managing highly appreciated, taxable brokerage accounts. For families in the $2M–$8M range, these portfolios can contain legacy individual stocks or outdated mutual funds with higher-than-ETF internal expense ratios that can drag down returns. Garrett and Adam break down the real-world tax friction involved in unwinding these concentrated positions, specifically navigating the thresholds where long-term capital gains tax rates rise and trigger the additional 3.8% Net Investment Income Tax. Rather than letting a fear of taxes prevent proper diversification or triggering a massive single-year tax bill by ripping off the band-aid, the conversation details how to map out a systematic, multi-year transition strategy. Finally, the episode reveals why the quiet summer months provide a critical planning window to run early income estimates and project portfolio dividend tracks, giving retirees the data-driven confidence they need to execute changes safely before the year-end deadline closes.
Key Tax Planning Questions
Question 1: How to diversify highly appreciated stock without a massive tax bill?
For retirees with a portfolios between $2M–$8M, holding a significant amount of highly appreciated individual stock inside a taxable brokerage account is a very common scenario. In my conversations with clients, there is occasionally a desire to simply hold onto the positions that have generated a lot of wealth over their careers. But more frequently, savers come to the table looking for a path to diversify out of that concentrated risk without taking an immediate, painful tax hit on decades of growth. Unfortunately, there isn’t usually a quick shortcut. But a patient and planned approach can help most retirees safely get their portfolio to where it needs to be.
I prefer to start these portfolio reviews by helping a household nail down their end goal. If you find that 20% of your total net worth is tied up in a single company's stock, you have to look closely at whether you are truly comfortable with that exposure. While many standard investment guides suggest that holding a 5% allocation in a single legacy company isn't a problem, my view is that the correct allocation depends on your specific lifestyle needs and how heavily your retirement plan relies on that brokerage account to fund your ongoing monthly expenses. For a family with other guaranteed income sources where the primary objective is maximizing a family legacy, maintaining a larger equity position might match their high risk capacity. For many others, finding a specific target to systematically pare that position down to a fixed percentage or a set dollar amount provides a much better baseline for peace of mind.
Once we determine the end goal, the conversation moves directly to methods. If you are charitably inclined, using gifting strategies can be a great and effective way to rebalance away from concentrated risk. But if you are not charitable inclined, the framework shifts to a multiple year tax-return-driven process. This strategy requires running an income projection each year to determine where your taxable income might land before December 31st. From there, we might intentionally trigger capital gains up to the thresholds of the 15% or 20% capital gains brackets, while strictly monitoring for the 3.8% Net Investment Income Tax and avoiding unexpected Medicare IRMAA premium surcharges. Spreading the tax hit of diversifying a highly appreciated stock position over a multi-year runway allows you to reposition your wealth strategically, and it serves as an excellent project for your financial planner and tax preparer to collaborate on to earn the fees you are paying them.
Question 2: Is direct indexing a good way to avoid capital gains tax?
When you look at the strategy discussed in the first question above (manually trimming a single appreciated position over multiple years), it works well for a single highly appreciated stock, but it can get administratively challenging if you are managing three or four different brokerage accounts filled with legacy mutual funds. This is where direct indexing, a newer strategy on the financial planning block, has updated the landscape for retirees in the $2M–$8M range. Instead of purchasing a mutual fund or standard exchange-traded fund, direct indexing allows you to own the underlying individual stocks of an index (like the S&P 500) directly in your brokerage account.
This approach may offer an advantage because it allows an advisor to establish an annual capital gains tax budget. If you consolidate scattered brokerage accounts with significant built-in appreciation to a single platform, you may be able to transition those positions over time more tax-efficiently. The tax-sensitive algorithm will attempt to time/sell your legacy (appreciated) holdings when the market drops, while trying to get you closer to your overall risk comfort level.
There are advantages and disadvantages to this strategy over the manual strategy. The primary benefit is daily, automated tax-loss harvesting at the individual security level. In a standard index fund, if the index is up 10% for the year, you cannot harvest a loss. Inside a direct index, even when the broad market is climbing, individual components like specific energy or retail companies will drop during the year, providing real-time losses you can harvest to offset the capital gains from winding down your legacy positions. The downside to watch for is the added layer of complexity and management cost. Direct indexing requires advanced tracking technology, holds a higher volume of transactions to report on your end-of-year tax forms, and typically carries a management fee overlay that you must balance against the projected tax savings. This structure is a distinct fit for a retiree who wants a professionally supervised transition out of volatile risk and into a diversified basket, but whose asset base sits below the ultra-high-net-worth thresholds where complicated trust and estate planning dominate the conversation.
Full Episode Transcript
Adam: Good morning and welcome to Retirement Tax Matters. I'm Adam Reed. This is Garrett Crawford, our resident CFP® professional. Garrett, this morning we have an interesting topic that is going to resonate with a lot of people who have accumulated significant wealth. For families who fall into that 2 million to 8 million dollar range, many have built large, taxable brokerage accounts outside of their traditional IRAs. They have crushed it by saving diligently throughout their careers, but now they find themselves holding positions with massive embedded capital gains. In a lot of cases, it feels like they are wearing financial handcuffs.
Garrett: It really is one of those good-bad problems to navigate.
Adam: You look at the account and appreciate how much it has grown, but you feel stuck because selling anything means triggering an immediate capital gains tax bill. Retirees are naturally tax-averse, and it is tough psychologically to watch a portion of your hard-earned wealth get distributed directly to the IRS.
Garrett: It compounds when you realize you made a smart investment decision years ago to buy a specific company. You look at that stock and think, I was right about this company, and I do not want to let it go. That creates a massive psychological hurdle to diversification.
Adam: We see this frequently with business owners who used a corporate brokerage account to park cash, or savers who bought individual shares of Apple or Microsoft decades ago. For the current generation transitioning into retirement, maybe it is a position like Tesla that skyrocketed. Garrett, why do these highly appreciated taxable accounts create such a distinct challenge when we are building out a tax-return-driven financial plan?
Garrett: When you look across the portfolios of retirees in the 2 million to 8 million dollar asset tier, almost every single household has at least one account holding an investment position with a legacy tax problem. Today, we are not going to do a generic 30-minute breakdown on basic brokerage account mechanics. We have a full archive of past shows and a dedicated index page on our website covering those rules. Instead, we are going to operate under the assumption that you already know why taxable accounts are complicated, and go straight to solving the pain point of holding a concentrated position that you are afraid to change due to the tax hit.
To understand how people get stuck, we have to look back at the shift that occurred over the last decade. Back when I started practicing in 2013, the financial industry was undergoing a massive transition away from traditional commission-based stock brokers. Investors were migrating into mutual funds because they provided easy diversification and lower costs. But today, many of those older mutual funds are considered expensive and outdated compared to modern exchange-traded funds. A retiree might look at their mutual fund holdings today and notice internal expense ratios of 0.8%, 0.9%, or even north of 1.3%. They naturally ask why they are paying a steep management premium for broad market exposure they could capture much cheaper inside an ETF. The problem is that exiting that old mutual fund requires realizing decades of appreciation all at once.
Adam: It is impressive how closely our listeners track these details. We have some sharp do-it-yourself investors in our audience, and if you are not careful, we might have to extend a job offer to get you over here helping us process these plans. But when people look at these highly appreciated assets, they often fall into an all-or-nothing trap. They think they must either leave the account completely alone or liquidate the whole portfolio, pull the trigger, and pay a massive tax bill. How do you reframe that choice?
Garrett: When you buy a volatile security in a taxable account, you are essentially committing to that position for a long timeline because exiting can be financially painful. We regularly cross paths with near-retirees who hold eight to ten scattered accounts with different allocations. They want to consolidate at one custodian to simplify their life and understand their true risk exposure, but they feel completely paralyzed by the tax friction.
If you have held a stock like Amazon for 15 years, you have realized incredible growth, but your cost basis is low. Selling that position triggers federal long-term capital gains tax up to 20%, plus you risk crossing the modified adjusted gross income thresholds of $250,000 for married couples or $200,000 for single filers, which tacks on an additional 3.8% Net Investment Income Tax. That tax friction blocks you from getting your portfolio to where it actually needs to be. You value simplicity, but you are terrified of the tax bill. The reality is that individual stocks carry distinct business risk. A company that dominates the market today can decline over a 30-year retirement window. Look at what happened to a giant like Sears. You cannot manage a multi-million dollar retirement portfolio under the assumption that a single sector will outperform forever just because you want to dodge a capital gains tax.
Different financial planners will give you different investment styles—some prefer passive indexes, others lean toward active strategies or dividend-paying companies. My philosophy for a taxable brokerage account is built entirely around flexibility. I like broad index funds and ETFs because they provide a natural, tax-efficient selection process where winning companies rotate in and losing companies drop off the bottom, minimizing internal turnover. Our goal with a new client is to build a systematic runway to migrate them out of concentrated risk and into a sustainable structure without hitting them with a single-year tax shock.
Adam: How do we practically execute that transition for families who onboard with us at Providence Wealth Management?
Garrett: It is a structured process. A typical family joins us with assets scattered across multiple employer 401(k) plans, traditional IRAs, and personal brokerage accounts. I recently reviewed a taxable account where the client’s cost basis was $200,000, but the total market value had ballooned to $700,000. They held legacy technology and leisure mutual funds purchased prior to 2020. Exiting those positions carelessly is a mistake because active mutual funds can hit you with forced capital gain distributions at the end of the year, completely outside of your control, which can easily trigger a Medicare IRMAA surcharge.
Our approach is to design a customized, multi-year transition plan—often spanning five to six calendar years. We map out exactly how much appreciation we can intentionally realize each year without pushing the household into a higher ordinary income tax bracket or triggering an avoidable net investment income tax penalty. By breaking down a massive capital gain into systematic, predictable annual liquidations, we can transition those funds into a diversified, tax-sensitive strategy that protects your lifestyle income.
Adam: That highlights why a brokerage account is such a powerful retirement tool if it is unlocked. When you hold a flexible, diversified taxable account, it gives you the liquidity to fund large one-time purchases, like a new roof or an early retirement transition, without being forced to tap your pre-tax accounts and create ordinary income. It also provides the liquid capital needed to pay the upfront tax bill on strategic fourth-quarter Roth conversions out of pocket. It gives you true control over the levers of your plan.
When you hold a multi-million dollar portfolio in that 2 million to 8 million dollar range, your primary focus changes. During your career, you are swinging for home runs and trying to maximize growth. But once you start landing the retirement plane, your main objective is avoiding strikeouts. If you just hit singles and doubles, your plan wins. A major market correction or a geopolitical event can permanently damage a concentrated stock position if you refuse to diversify out of a fear of paying taxes today. Taking a proactive approach to managing your basis is simply smart risk management.
Garrett: Well said, Adam.
Adam: Let's close it out with a look at the calendar. We are currently sitting at the beginning of July. Garrett, give us a quick technical overview of how our seasonal framework utilizes the summer months to map out these specific brokerage account adjustments.
Garrett: The summer is the perfect window to handle this cleanup. In the spring, our focus is entirely on historical tax return reviews to verify that prior-year strategies were recorded accurately. In the fall, our calendar is packed with executing final Roth conversion figures and harvesting investment choices before the year-end deadline closes. The summer provides the necessary breathing room to build out a structured, three-to-five-year portfolio transition plan.
We log into our software to run early income estimates and project exactly how many dollars of capital gains we can comfortably harvest later in the fall. We also use this time to map out internal dividend tracks. If we transition you away from active mutual funds and into tax-efficient ETFs, we are changing the amount of ordinary and qualified dividends the portfolio distributes. Adjusting that dividend floor today ensures that your year-end tax projection is accurate and protects you from an unexpected tax bill next April. It is about clearing out the clutter so you can execute with absolute certainty when the fall window opens.
Adam: Simplified and diversified—that belongs on a T-shirt. Summer is the time to clear out the financial cobwebs, check your allocations, and get your plan positioned for the second half of the year. We appreciate you following along with our show. You can find our free year-end tax planning checklist linked on our website at retirementtaxmatters.com. Make sure to follow, subscribe, and leave us a review on Apple Podcasts and YouTube. I'm Adam Reed. This is Garrett Crawford. We're Retirement Tax Matters.
Garrett: See you next time.