How do you diversify out of a stock you cannot sell without a large tax bill?
Sam has about $12 million invested, and more than half of it is in a single technology stock with a very low cost basis. He spends roughly $30,000 a month. He has an adult daughter he would like to help, as long as doing so does not put his own plans at risk and still lets her stand on her own.
Owning that much of one company is a risk Sam already understands. Selling it all at once would realize nearly the entire position as capital gain in a single year. So diversifying was a given. The open questions were how fast, by what means, and what else would be competing for the same years.
Every year Sam realizes gains to diversify is also a year a Roth conversion might have used. The two decisions share the same room.
Analysis
What we looked at
Whether he can retire
Sam's first question is whether he needs to keep working. The answer depends on two things he controls, how he wants to live and how much he wants to give his daughter, so we looked at retirement as a range of choices rather than a single yes or no.
Diversifying the position
Selling gradually over several years spreads the gain across more tax years instead of concentrating it in one. Alongside that, tax-aware strategies that realize losses elsewhere in the portfolio can offset part of the gain as shares are sold. None of this removes the tax. It changes when the tax is paid and how much of the position can be moved each year for a given cost.
Borrowing instead of selling
A line of credit secured by the portfolio can cover spending without selling shares, which lets the position stay invested while it is diversified over time. It carries real risks. The rate is usually variable, and if the stock falls sharply the lender can require him to add collateral or sell. The interest is generally deductible only when the borrowed money is used to buy investments, and then only up to his net investment income, so using the line for living expenses generally does not produce a deduction.
Helping his daughter
Gifting appreciated shares rather than cash lets his daughter sell them at her own capital gains rate, which may be lower than his, provided she is old enough that her investment income is no longer taxed at his rates. Gifts above the annual exclusion, $19,000 per recipient in 2026, use part of his lifetime exemption. We also looked at trust structures that let him help on a schedule without handing over everything at once.
Estate taxes
At about $12 million, Sam's estate sits below the federal exemption, which is $15 million per person for 2026 and indexed for inflation after that, though growth in the stock could change that. It also changes the gifting math. Shares he gives away during his life carry his low basis to his daughter, while shares still held at his death generally receive a new basis equal to their value then. For a position with this much built-in gain, holding some shares may leave her more than giving them early, so we looked at which shares to give and which to keep.
Roth conversions
If Sam stops working, the years before required distributions begin, at age 75 under current law, are likely to be his lowest-income years. Converting part of his traditional retirement accounts in those years may cost relatively little in tax and reduces the required distributions he will face later. The same years are also the ones he would use to realize gains while diversifying, so we sized the two together rather than deciding each on its own.
Tax figures reflect federal law for 2026 and may change.
The examples shown are illustrative and do not represent any actual client. The situations are constructed, and the figures are rounded and chosen for illustration. They are not a projection, a recommendation, or an indication of results any client did receive or should expect to receive. Individual circumstances vary, tax rules change, and the analysis appropriate to one situation will not apply to another. Financial North Partners and NewEdge Advisors do not provide tax, legal, or accounting advice. You should consult your own tax, legal, and accounting professionals before making decisions based on the strategies discussed.