You diversify a concentrated stock position by selling it down on a written schedule while controlling which tax bracket each year’s gain lands in — not by dumping it all at once, and not by waiting for a price that feels right. For most people holding $500,000 to $3 million in a single company, that means a two-to-four-year sell-down, pairing gains with harvested losses, and giving away the lowest-basis shares instead of selling them. Exchange funds and collars exist, but they solve a narrower problem than most people are told.
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I have this conversation several times a year. Someone spent twenty years at a good company, took stock every year, never sold, and now one ticker is 40% of their net worth. They know it’s too much. They also know selling triggers a tax bill they’ve spent two decades avoiding. So they do nothing — itself a decision, just not a deliberate one.
How much in one stock is too much?
I get uncomfortable above 10% of investable assets and genuinely concerned above 20%. But the honest test is simpler than any threshold: if this position went to zero tomorrow, does your plan still work? A couple with $4 million and $500,000 in one stock — survivable. A couple with $2 million and $900,000 in one stock has a problem a tax bill doesn’t excuse.
And if your salary, health insurance, and unvested equity come from that same company, your real concentration is far above whatever the portfolio says.
What does it actually cost to sell?
Usually less than people fear, and it’s knowable in ten minutes. Take a married couple in Massachusetts with a $1,000,000 position, a $200,000 basis, and $200,000 of other taxable income — an $800,000 long-term gain.
| Tax layer | Rate | Amount |
|---|---|---|
| Federal long-term capital gains (15% portion) | 15% | $60,008 |
| Federal long-term capital gains (20% portion) | 20% | $79,990 |
| Net Investment Income Tax | 3.8% | $30,400 |
| Massachusetts income tax | 5% | $40,000 |
| Total on an $800,000 gain | 26.3% | $210,398 |
For 2026, joint filers pay 0% on long-term gains up to $96,700 of taxable income, 15% to $600,050, and 20% above that, per the IRS’s guidance on capital gains and losses. On top sits the 3.8% Net Investment Income Tax, which starts at $250,000 of modified AGI and has never been indexed for inflation. Massachusetts adds a flat 5%; short-term gains are taxed at 12% here, which is why holding past one year matters more in this state than most.
So: 26.3% — the price of turning one company into a diversified portfolio. A lot of money, and usually less than the drawdown of one bad year in one stock.
Does spreading the sale over several years actually save much?
Some, but less than most people assume — and here I’ll break with the standard advice. Sell $250,000 per year for four years and each year’s $200,000 gain falls entirely in the 15% bracket instead of spilling into 20%.
| Approach | Total tax on $800,000 gain | Effective rate |
|---|---|---|
| Sell all in one year | $210,398 | 26.3% |
| Sell over four years | $190,400 | 23.8% |
| Savings | $19,998 | 2.5% |
Twenty thousand dollars is worth capturing. But notice what it isn’t: a reason to stretch the sale over ten years. You’re saving 2.5% of the gain while carrying the risk of a 40% or 60% decline in one name. I’ve watched people spend eight years slowly exiting to save a few points and lose far more to the stock itself.
Multi-year selling earns its keep at the edges of a cliff. Massachusetts adds a 4% surtax on taxable income above roughly $1.08 million — $1,083,150 for 2025, indexed annually, per the Massachusetts Department of Revenue. Our couple lands at exactly $1,000,000 and squeaks under. A couple with $400,000 of other income clears it by $116,850 and owes an extra $4,674 — avoidable by splitting the sale across two calendar years. Medicare is the same shape: a large gain two years before you enroll can bump you into a higher IRMAA bracket for a full year. High earners here should understand how the Massachusetts millionaires tax works before trading.
Can I use losses to offset the gain?
Yes, and it’s the most underused tool in the set. Losses realized anywhere in your taxable accounts offset capital gains dollar for dollar, with no limit — and they don’t expire.
Here’s what people miss. If you know a concentrated position is coming down over the next few years, every loss you harvest between now and then is worth 23.8% to 26.3% of its face value — not the $3,000-per-year trickle it’s worth to someone with no gains to offset. That’s why I’ve written about when tax-loss harvesting is genuinely worth the effort. One caution: the wash-sale rule disallows the loss if you repurchase a substantially identical security within 30 days either side of the sale, across all accounts including your spouse’s and your IRA.
Should I give the shares away instead of selling them?
If you give to charity at all, give appreciated shares — never cash. Donating stock held more than a year to a public charity or donor-advised fund lets you deduct fair market value while the embedded gain simply disappears. Nobody pays it.
Pick your lowest-basis lots. Giving $30,000 of shares with a $6,000 basis erases a $24,000 gain and saves roughly $6,300 at the 26.3% blended rate above. Giving $30,000 of cash saves nothing extra. Same charity, same money, meaningfully different outcome for you. Deduction limits differ for appreciated property versus cash and the rules changed for 2026, so check the IRS’s current charitable contribution limits before a large gift.
Gifting to family is different: the recipient inherits your basis, so you’ve moved the gain, not erased it. But Massachusetts taxes estates above $2 million and that exemption isn’t portable between spouses, which makes the $19,000 annual exclusion genuinely useful here even when the federal $15 million exemption makes gifting look pointless.
What about exchange funds?
Exchange funds let you contribute concentrated stock into a partnership holding many investors’ positions, receiving a diversified basket without triggering a sale. They’re legitimate, and they’re oversold. You generally need to be an accredited investor, your capital is locked up for seven years, the fund must hold illiquid real estate to qualify for the treatment, and fees often run 1% or more. Critically, your low basis carries over — you’ve deferred the gain, not eliminated it.
Run the arithmetic. Seven years of an extra 1% on a $1,000,000 position costs well over $70,000 against a $210,000 lump-sum bill. The fund can still win, but the margin is narrower than the pitch suggests. It fits one specific person: very large position, very low basis, no charitable intent, no need for the money. That’s a real person — just not most people.
What if the stock is inside my 401(k)?
Check for net unrealized appreciation before you roll anything over. NUA rules can let you move appreciated employer stock out of a 401(k) into a taxable account, pay ordinary income tax only on the original basis, and treat the appreciation as long-term capital gain. The spread between 37% and 20% is enormous, and the election is gone the moment you roll into an IRA. It’s the most expensive mistake I see with employer stock — mechanics are in my post on how net unrealized appreciation works in a 401(k).
What if I still work there?
Then you’re selling into blackout windows and insider-trading rules, and a 10b5-1 plan is how you solve it: a written instruction, adopted while you’re not holding material non-public information, that sells a fixed number of shares on a fixed schedule regardless of price. It lets you sell during periods you otherwise couldn’t and — more usefully — takes the quarterly “is this a good price?” decision out of your hands. A cooling-off period applies before the first trade, so set it up early. And if RSUs keep vesting into the same stock, sell them at vest: you’ve already paid ordinary income tax on the full value, so holding buys you nothing.
How does a flat fee change this decision?
It removes a conflict most people never see. Under the AUM model, an advisor bills a percentage of what they manage — and a $1,000,000 position sitting in your employer’s plan often isn’t in that number yet. Selling it and moving the proceeds into the managed account raises their fee by roughly $10,000 a year at 1%. Telling you to keep it, hedge it, or park it in an exchange fund doesn’t. When “should I sell this?” moves your advisor’s revenue by five figures, you deserve advice from someone for whom it moves nothing.
Evergreen Wealth Management charges a flat monthly fee whether you have $1 million or $8 million, and whether you sell or hold forever. Our flat-fee pricing structure is the same number either way, which is the point: the recommendation has to stand on its own. You can see it play out in our client scenarios and investment management approach.
The bottom line
Write down a target allocation, a dollar amount per year, and a date you’ll be finished. Two to four years fits most positions. Harvest losses along the way, give the lowest-basis lots to charity, watch the Massachusetts surtax and IRMAA thresholds, and check for NUA before any 401(k) rollover.
What you should not do is wait for a better price. The tax bill on an $800,000 gain is about 26%. The bill for being wrong about one company is sometimes 100%.
Frequently Asked Questions
How long should it take to diversify a concentrated stock position?
Two to four years suits most people. Spreading an $800,000 gain over four years instead of one saves roughly $20,000 — about 2.5% of the gain. Stretching beyond that adds very little while leaving you exposed to single-stock risk for years longer.
Is there any way to diversify without paying capital gains tax?
Three approaches genuinely avoid or defer it: donating appreciated shares eliminates the gain, exchange funds defer it in return for a seven-year lockup and ongoing fees, and harvested capital losses offset it dollar for dollar. Everything else is timing — useful, but you still pay.
What does the Massachusetts 4% surtax mean for a large stock sale?
Massachusetts adds 4% on taxable income above roughly $1.08 million, on top of the flat 5% rate. A large one-year gain can push you over that line when a two-year sale wouldn’t. For a couple $116,850 over the threshold, that’s $4,674 in avoidable tax.
Does Evergreen charge more after I diversify into a larger managed portfolio?
No. Evergreen Wealth Management is a fee-only fiduciary charging a flat monthly fee regardless of portfolio size. Selling a $1 million position and moving the proceeds in doesn’t change our fee by a dollar — which is precisely why we can give a straight answer about whether to sell it.
Thinking through a concentrated position?
If one stock has quietly become too much of your net worth, the next step is running your actual numbers — your basis, your bracket, your timeline — rather than guessing at the tax bill. That’s a conversation, not a sales call. Read about what working with us looks like or more about Nick and the firm.
Nick Stevens, CFP® is the founder of Evergreen Wealth Management in Boston, a flat-fee financial planning and investment management firm. Evergreen charges a fixed monthly fee regardless of portfolio size. Learn more about how we work at our fee structure page or get in touch at contact us.