Imagine the dilemma of holding a large number of shares of NVDA with a massive unrealized profit. While, on the one hand, you have produced incredible returns, you also have an enormous tax bill once you sell. It appears that very wealthy individuals and some institutions are using a 100-year-old tax code to avoid paying taxes on spectacular unrealized gains. 351 ETFs are unique in that they start with assets, rather than a small amount of cash to seed the portfolio. In this case, the 351 ETFs assets are those with large stock price appreciations, thus significant unrealized tax gains.
The number 351 comes from section 351 of the US tax code. The rule, which became effective in 1924, allowed for the non-recognition of gains or losses on property when said property is transferred to a corporation in exchange for stock and the transferor maintains at least 80% of the stock. The code has been modified since then, but the wrinkle in the case of 351 ETFs is that anyone can transfer stock into an ETF and avoid capital gains. Therefore, an investor, once they transfer assets into the 351 ETF, can sell those assets, swap them for new assets, and realize significant gains without paying taxes. The drawback is that the majority shareholder must pay to set up and run the 351 ETF, as well as manage the ETF from a fiduciary perspective.
The following graphic is from a Bloomberg article on 351 ETF conversions.
What To Watch Today
Earnings
Economy
Market Trading Update
Yesterday, we noted Sentiment Trader’s excellent analysis on “buying the dip.” As discussed, such has certainly been a winning strategy over the last three years, as bullish sentiment has reached increasingly excessive levels (see note on Kohl’s below). However, with that stated, bullish markets can remain bullish for much longer than you can imagine, but they do eventually end. For example, I noted on “X” yesterday.
Given that the market is up 27% from its April lows, is overbought, and has deviated from longer-term means, it is worth recognizing that risk is building. Does this mean the market will crash tomorrow? No. But it does suggest that the risk of a correction is building. As shown in the weekly chart below, the S&P is back to the top of its running trend channel, is approaching overbought on a weekly basis, and is trading well above its 6-month moving average. Again, this doesn’t mean the market reverts tomorrow, but historically it has provided investors decent signals to rebalance risks and portfolio structures accordingly.
Kohl’s: The Latest Meme Stock
Shares of retailer Kohl’s (KSS) doubled on the open yesterday. It appears to be the latest so-called meme stock being pushed higher by social media mentions. The graph below shows that KSS closed at $10.50 on Monday night and reopened Tuesday morning at $21.50.
One of the themes that has emerged over the past few months in this leg of the rally is the rise of speculative stocks and activities. A handful of stocks with ties to AI or crypto are on moonshots. 0dte options are all the rage once again. And, meme stocks like KSS are becoming extremely volatile despite a lack of news to warrant such price action. It’s worth noting that short interest in KSS was nearly 50%. Thus, if meme traders could get the stock to move higher, they could force significant buying from short participants. That appears to be the catalyst for Tuesday’s surge.
Why Retirement Planning For High Income Earners Requires A Different Approach
For most Americans, retirement planning advice follows a familiar script: save early, contribute to a 401(k), diversify investments, and aim to reduce expenses in retirement. While this guidance is foundational, it often falls short for high-income earners. Individuals earning well above the national average face a more complex set of financial challenges and opportunities. These situations demand advanced planning, particularly around taxes, distributions, and wealth preservation.
Traditional advice may not serve your best interests if youโre in a high tax bracket, already saving aggressively, or managing a sizable portfolio. Instead, your retirement strategy must be tailored to reflect your income, lifestyle goals, and long-term legacy plans. Letโs explore why and how retirement planning for high earners is fundamentally different and the tax-efficient retirement strategies that make the most of it.
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