What Should You Do With a Concentrated Stock Position Before Retirement?

Sometimes an investment works almost too well.

Maybe you bought a stock years ago and simply held on. Maybe you worked for a company that paid you in stock. Maybe you inherited shares, received equity compensation, or bought a great company early and watched it grow for years.

Now you are approaching retirement, and one position has become a meaningful part of your net worth.

That can feel like a good problem to have. And in many ways, it is.

But it can also create a difficult planning question:

What should you do when one stock has grown so large that selling feels painful, but holding it feels risky?

For many near-retirees, the challenge is not that they do not understand diversification. They usually do. The challenge is that every option feels imperfect.

Selling may create capital gains taxes.
Holding may preserve tax deferral, but it keeps the risk in place.
Gifting may help family, but it may not eliminate the tax problem.
Donating may be attractive, but only if charitable giving already fits your plan.
More advanced strategies may help, but they come with complexity, cost, and limitations.

In some cases, the answer is not only what to do with the stock itself, but how to build the rest of the portfolio around it.

In other words, this is not just an investment decision. It is a tax planning, retirement income, estate planning, and behavioral finance decision all wrapped together.

Winding Trail Financial Planning helps retirees make tax-aware investment decisions

Winding Trail Financial Planning is a fee-only financial advisor in Lafayette, Colorado, serving retirees and near-retirees who want help coordinating investments, taxes, retirement income, Social Security, Roth conversions, and charitable giving. We typically serve those in the Lafayette, Louisville, Erie, Broomfield, Boulder, and surrounding areas.

For many people, a concentrated stock position is where all of those planning areas overlap. The right answer is rarely as simple as “sell it” or “never sell it.” A better question is: what role should this stock play in your retirement plan from here?

This article is designed to help you understand the major options before making a decision.

What is a concentrated stock position?

A concentrated stock position generally means that one stock or one company makes up a large percentage of your portfolio or net worth.

There is no single universal cutoff, but once one stock becomes 10%, 20%, 30%, or more of your investment portfolio, it deserves special attention.

A concentrated position can come from several places:

You held a successful stock for many years.
You received company stock, RSUs, ISOs, NSOs, or ESPP shares.
You inherited shares from a parent or family member.
You sold a business or received shares through a transaction.
You intentionally bought a company you believed in and kept adding to it.

A concentrated position is not automatically bad. Often, it exists because something went very right.

The problem is that the stock does not know you are about to retire.

A company that helped build your wealth can also create a lot of risk if too much of your retirement depends on that one company continuing to perform well.

The real question: tax cost versus concentration risk

Many investors focus almost entirely on the tax bill.

That is understandable. If you bought a stock years ago for $50,000 and it is now worth $500,000, selling could create a large taxable gain.

But taxes are only one side of the decision.

The other side is risk.

What happens if the stock drops 30%, 40%, or 50% right before or right after retirement? What if you need to begin portfolio withdrawals during a period when the stock is down? What if the company’s future is still strong, but the stock price has already priced in years of good news?

The goal is not always to pay the least tax this year. Don't let the tax tail wag the dog.

The better goal is usually to make the best after-tax, risk-adjusted decision over time.

Sometimes that means accepting a tax bill in order to reduce a much bigger financial risk.

To paraphrase Dr. Richard Bernstein, if you've won the game, stop playing.

Don't Add to the Problem

On that note and before we get into discussion options, what's the first thing you should do should you find yourself in a hole? Stop digging. If you're in your 50s or a few years from retirement and still working, it's possible that you may still be receiving shares of your company. You may want to consider if it makes sense to sell those shares as they continue to vest. The net dollars can then be used for something else such as a diversified portfolio, cash reserves, or other goals. It's certainly a good idea to speak with your financial advisor, tax professional, and possibly human resources.

Option 1: Sell some of the stock over time

The simplest strategy is often the most overlooked.

You do not have to choose between selling everything today or holding everything forever. In many cases, a gradual selling plan can help reduce risk while spreading the tax impact across multiple years.

This might involve selling a portion of the position each year, especially in years when your taxable income is lower.

For example, many retirees have a window after they stop working but before Social Security, required minimum distributions, or large pension income begins. During that window, it may be possible to realize some capital gains at more favorable tax rates than during high-income years.

A gradual selling plan may also be coordinated with:

Tax-loss harvesting
Roth conversions
Charitable giving
Medicare IRMAA thresholds
State income taxes
Retirement withdrawal needs
Portfolio rebalancing

This is not flashy. But it is often practical.

The downside is obvious: selling appreciated stock may trigger capital gains tax.

The upside is also important: once you sell, you have reduced single-company risk and created more flexibility in your retirement plan.

My opinion is that selling to help fund retirement withdrawal needs is ofter the most overlooked as it partially solves the concentration problem, the need for cash flow in retirement, and helps with rebalancing.

Sometimes the cleanest answer is not the most clever answer.

Option 2: Hold some or all of the position

Holding can also be a legitimate strategy.

There are situations where it may make sense to keep some or all of a concentrated stock position, especially if:

The position is not too large relative to your total net worth.
You have enough diversified assets to support your retirement income.
You are comfortable with the downside risk.
The tax cost of selling is very high.
You want the asset to pass to heirs.
You expect a potential step-up in basis at death.

Under current federal tax rules, inherited assets often receive a basis adjustment at death, commonly referred to as a step-up in basis. That can reduce or eliminate built-in capital gains for heirs if they later sell the asset. The IRS explains that basis rules differ depending on whether property is inherited or received as a gift.  

That said, “hold until death” is not automatically a good plan.

A future step-up in basis does not help you if the stock creates too much risk during your lifetime. It also does not help if you need to sell shares during retirement to support spending.

Holding may be tax-efficient. But it should still be intentional.

A useful question is:

Would I buy this much of this same stock today if I were starting from cash?

If the answer is no, that does not automatically mean you should sell everything. But it does mean the position deserves a plan.

Option 3: Gift shares to family

Another option is to give some shares to children, grandchildren, parents, or other family members.

This can be attractive if you want to transfer wealth during your lifetime. It may also make sense if the recipient is in a lower tax bracket than you, although the details can get complicated.

But there is a key tax issue: lifetime gifts of appreciated stock generally do not receive a new stepped-up basis. Instead, the recipient often receives the donor’s basis, sometimes called carryover basis. IRS guidance explains that basis for gifted property depends on the donor’s adjusted basis, the fair market value at the time of the gift, and whether the recipient later sells at a gain or loss.  

In plain English: gifting appreciated stock may move the tax problem. It usually does not erase it.

Gifting can still be useful, especially as part of a broader family wealth plan. But it should be coordinated with:

Gift tax rules
The recipient’s income tax bracket
Financial aid considerations
The recipient’s maturity and financial habits
Your own need for retirement income
Estate planning documents
Basis records

Working with families over the years, even if someone doesn't need the shares for their own retirement, gifting it even to responsible adult children can create heartburn especially if it creates a bigger issue for the recipient including potentially lost tax credits, financial aid issues, and even creditor concerns.

The biggest mistake is assuming that a gift solves the capital gains issue automatically.

It usually does not.

Option 4: Donate appreciated shares to charity or a donor-advised fund

If you are already charitably inclined, appreciated stock can be one of the most tax-efficient assets to give.

Instead of selling the stock, paying capital gains tax, and then donating cash, you may be able to donate appreciated shares directly to a qualified charity or donor-advised fund.

This can potentially allow you to avoid recognizing the capital gain personally while also receiving a charitable deduction, subject to the normal charitable deduction rules and limitations.

Donor-advised funds are charitable giving accounts that allow a donor to make a charitable contribution, receive a potential tax deduction, and recommend grants to charities over time. The IRS has specific rules and oversight concerns around donor-advised funds, particularly when arrangements create questionable deductions or impermissible benefits.  

A donor-advised fund may be especially useful if you want to “bunch” several years of charitable giving into one tax year.

For example, instead of giving $10,000 per year in cash, you might donate several years’ worth of appreciated stock in one year, potentially itemize deductions that year, and then recommend grants to charities gradually over time.

This can work particularly well in a year when:

Your income is unusually high.
You sell a business or property.
You exercise stock options.
You realize large capital gains.
You do a Roth conversion.
You want to reduce a concentrated position.

The key phrase is: if you are already charitably inclined.

Donating stock just to avoid taxes usually does not make sense. You are still giving the asset away.

But if charitable giving is already part of your plan, appreciated stock may be a much better asset to give than cash.

Option 5: Use tax-loss harvesting to offset gains

If you have losses elsewhere in your taxable investment account, those losses may be used to offset gains from selling part of the concentrated stock position.

This can create an opportunity to reduce concentration without creating as much taxable income.

For example, if you have a $50,000 unrealized loss in one investment and a $50,000 gain in your concentrated stock, you may be able to realize both and offset the gain.

This is called tax-loss harvesting.

Tax-loss harvesting is not a magic trick. You still need to be careful about wash sale rules, replacement investments, transaction costs, and whether the sale actually improves your portfolio.

But when available, harvested losses can create valuable “tax room” to diversify a concentrated position.

This is one reason concentrated stock planning should not be done in isolation. The right answer depends on the rest of your portfolio.

Option 6: Use options or hedging strategies

Some investors consider options strategies to manage concentrated stock risk.

Common examples include:

Covered calls
Protective puts
Equity collars
Prepaid variable forwards

A covered call may generate income but can limit upside.
A protective put may help protect against downside but costs money.
A collar may limit both downside and upside.
More advanced structures may create liquidity or defer taxes, but they can be complex.

These strategies may have a place in specific situations, especially for executives, founders, or high-net-worth investors with very large positions.

But they are not simple.

Options can create tax issues, liquidity constraints, opportunity costs, and unexpected outcomes. They may also make the investor feel like they have solved the problem when they have really only delayed the larger decision.

The fundamental question remains:

How much of this stock do you actually want to own during retirement?

Options may help manage the path from here to there. They usually do not replace the need for a broader plan.

Option 7: Consider an exchange fund

An exchange fund is a more advanced diversification strategy often used by high-net-worth investors.

The basic idea is that multiple investors contribute appreciated stock positions into a pooled vehicle. In return, each investor receives an interest in a more diversified fund.

This may allow an investor to diversify without immediately selling the appreciated shares and triggering capital gains tax.

That sounds attractive, but there are tradeoffs.

Exchange funds often involve:

High minimum investment requirements
Accredited investor or qualified purchaser requirements
Long lock-up periods
Limited liquidity
Fees and expenses
Complex tax reporting
Restrictions on what types of stock can be contributed
A diversified basket that may not perfectly match your desired portfolio

Exchange funds can be useful, but they are not a universal answer. They are usually most relevant when the position is very large and the investor can tolerate complexity and illiquidity.

Option 8: Look at newer Section 351 ETF strategies carefully

Another strategy that has received more attention recently involves contributing appreciated securities to an ETF structure in a transaction intended to qualify under Section 351.

The general idea is that an investor may contribute appreciated securities to a fund in exchange for fund shares, potentially diversifying without an immediate taxable sale.

This area is technical and evolving. These strategies may have strict requirements, including diversification rules, contribution limits, fund structure issues, and potential tax scrutiny.

For most retirees, this should not be viewed as a casual DIY solution.

It may be worth exploring if you have a very large concentrated position and access to experienced tax, legal, and investment professionals. But it should be approached carefully.

A good rule of thumb: the more sophisticated the strategy sounds, the more important it is to understand the costs, restrictions, tax assumptions, and exit plan.

Option 9: Do nothing — but make it a conscious decision

Doing nothing is still a decision.

Sometimes, holding the position is reasonable. Other times, doing nothing is just a way to avoid an uncomfortable tax bill.

There is a big difference between:

“We reviewed the position, modeled the risk, considered the tax impact, and intentionally decided to keep it.”

And:

“I know it is probably too much, but I do not want to deal with it.”

The second version is where people can get into trouble.

This is especially important near retirement because your margin for error may shrink. While you are working, a major stock decline may be painful but survivable. Once you are retired and taking withdrawals, the same decline may have a much larger impact.

That does not mean you need to eliminate every risk.

It does mean you should understand which risks you are choosing to keep.

Option 10: Build the rest of the portfolio around the concentrated position

Another option is to keep the concentrated stock position, at least for now, and build the rest of the portfolio around it more intentionally.

This does not eliminate the risk of the concentrated position. But it may help reduce the risk of accidentally adding more of the same exposure elsewhere.

For example, imagine someone has a large position in one technology stock. If they also own a standard S&P 500 index fund, a total U.S. stock market fund, and a large-cap growth fund, they may own even more of that same company indirectly through those funds.

That may be fine if it is intentional. But often, it is not.

In that case, the investor may be able to adjust the rest of the portfolio to reduce overlapping exposure.

This could include using:

Direct indexing
Individual stocks
Sector-specific ETFs
More diversified mutual funds or ETFs
Value-oriented funds
Equal-weight index funds
International funds
Bonds or cash reserves
Tax-managed funds

Direct indexing can be especially useful in some cases because it may allow the investor to own a customized basket of stocks while excluding or reducing exposure to the concentrated company, its sector, or similar companies. It may also create tax-loss harvesting opportunities that can be used to offset gains from gradually selling the concentrated position over time.

This strategy can be particularly helpful for someone who is still working, still saving, and still in their 50s or early 60s.

If they are continuing to contribute to a 401(k), brokerage account, Roth IRA, backdoor Roth IRA, or other investment accounts, future contributions can be directed toward assets that improve the overall diversification of the household balance sheet.

That said, this approach has limits.

If one stock represents 40%, 50%, or 70% of the total portfolio, it may be difficult to diversify around it without eventually reducing the position itself. At some point, the concentrated position may simply be too large for the rest of the portfolio to offset.

But for someone with a moderately concentrated position, strong cash flow, and several years before retirement, building around the position can be a practical middle ground.

It allows them to say:

“We are not going to sell everything today, but we are also not going to keep blindly adding to the same risk.”

This can be a thoughtful strategy when paired with a gradual selling plan, charitable giving plan, or tax-loss harvesting strategy.

The key is to evaluate the household portfolio as a whole, not account by account and not fund by fund.

A concentrated stock position may sit in one taxable account, but the risk belongs to the entire retirement plan.

A simple framework for deciding what to do

Before choosing a strategy, it helps to answer a few questions.

1. How concentrated is the position?

Is the stock 5% of your portfolio?
15%?
30%?
More than half your net worth?

The larger the position, the more planning it deserves.

2. What is the embedded gain?

A stock worth $500,000 with a $450,000 cost basis is very different from a stock worth $500,000 with a $50,000 cost basis.

The tax cost of selling depends heavily on the unrealized gain.

3. Do you need this money for retirement income?

If the stock is part of the money you need to support your lifestyle, concentration risk matters more.

If it is truly legacy money, you may have more flexibility.

4. What would happen if the stock dropped 40%?

This is one of the most useful questions.

If a 40% decline would be annoying but manageable, you may have more room to hold.

If a 40% decline would materially change your retirement, that is a different conversation.

5. Are you charitably inclined?

If yes, appreciated stock may be a useful giving asset.

If no, charitable strategies probably should not drive the decision.

6. Are you trying to reduce taxes or reduce risk?

These are related, but they are not the same.

Sometimes the lowest-tax strategy leaves you with too much risk. Sometimes the best risk-management strategy creates a tax bill.

The planning work is in balancing the two.

7. What does the rest of your plan look like?

A concentrated position should be evaluated alongside:

Social Security
Pensions
Cash reserves
Taxable accounts
IRAs and Roth IRAs
Required minimum distributions
Roth conversion opportunities
Estate planning goals
Insurance needs
Charitable intentions
Family support goals

The same stock position could lead to different recommendations for two different families.

The hidden cost of DIY investing

One of the hidden costs of DIY investing is not just picking the wrong investment.

Sometimes the hidden cost is holding the right investment for so long that it becomes hard to make rational decisions later.

A concentrated winner can create emotional attachment.

You may feel loyal to the company.
You may not want to pay the tax.
You may anchor to the highest price the stock ever reached.
You may believe the stock is different because it has always recovered before.
You may worry that selling means admitting the run is over.

That is normal.

But retirement planning often requires moving from accumulation mode to distribution mode.

During accumulation, concentration may have helped build wealth.
During retirement, concentration can threaten the wealth you already built.

That does not mean you need to sell everything. It means the position needs a job.

Is its job to fund retirement income?
Is its job to support heirs?
Is its job to fund charitable giving?
Is its job to remain a high-risk, high-conviction investment?
Is its job to be gradually diversified over time?

Once you know the job, the strategy becomes clearer.

Final thoughts

A concentrated stock position is not automatically a problem. In many cases, it is the result of patience, discipline, or being part of a successful company.

But as retirement gets closer, the question changes.

It is no longer just:

“Has this been a good investment?”

The better question is:

“How much of my retirement should depend on this one investment going forward?”

There may be several reasonable answers. You might sell gradually, hold some shares, donate appreciated stock, gift shares to family, use losses to offset gains, explore an exchange fund, or consider more advanced strategies.

The right answer depends on your taxes, your income needs, your risk tolerance, your estate plan, and your goals.

The key is to make the decision intentionally.

Thanks for reading.

-Dwight

P.S. If you have a large stock position and are not sure whether to sell, hold, donate, or diversify over time, this is exactly the type of planning question worth reviewing before retirement. Winding Trail Financial Planning is a fee-only financial advisor in Lafayette, Colorado, helping retirees and near-retirees make tax-aware decisions about investments, retirement income, Roth conversions, charitable giving, and long-term planning. Let's chat.

FAQs

Should I sell my concentrated stock position before retirement?

Not necessarily. Selling may reduce risk, but it can also trigger capital gains tax. The better approach is to compare the tax cost of selling against the risk of continuing to hold a large single-stock position during retirement.

How much company stock is too much?

There is no universal rule, but once one stock becomes a meaningful percentage of your portfolio or net worth, it deserves attention. A 5% position may be manageable. A 25%, 40%, or 60% position can create much more risk, especially if you need the money for retirement income.

Is it better to hold appreciated stock until death?

Holding appreciated stock until death may allow heirs to receive a step-up in basis under current tax law, but that does not automatically make it the best strategy. If the stock creates too much risk during your lifetime, the potential future tax benefit may not be worth the investment risk.

Can I gift appreciated stock to my children to avoid capital gains tax?

Gifting appreciated stock usually does not eliminate the capital gain. In many cases, the recipient receives your original cost basis, known as carryover basis. That means the built-in gain may still be taxable when the recipient eventually sells.

Is donating appreciated stock better than donating cash?

If you are already charitably inclined, donating appreciated stock may be more tax-efficient than donating cash. You may be able to avoid selling the stock personally and may receive a charitable deduction, subject to the normal tax rules and limitations.

What is an exchange fund?

An exchange fund is a pooled investment vehicle that may allow investors with concentrated appreciated stock positions to diversify without immediately selling their shares. Exchange funds can be useful in some high-net-worth situations, but they often involve high minimums, long lock-up periods, fees, and complexity.

Are options a good way to manage concentrated stock risk?

Options strategies such as covered calls, protective puts, and collars may help manage risk or generate income, but they also add complexity. They can limit upside, create costs, and introduce tax considerations. They can also be less "set it and forget it" and may require professional assistance to implement depending on the investor's comfort level. They should be evaluated as part of a broader plan.

What is the biggest mistake people make with concentrated stock?

The biggest mistake is usually doing nothing without realizing that doing nothing is still a decision. A concentrated position should be reviewed intentionally, especially before retirement, when portfolio risk and tax planning become more connected.

Can I diversify around a concentrated stock position without selling it?

Sometimes. If the position is not too large, you may be able to build the rest of the portfolio around it by reducing overlapping exposure in mutual funds, ETFs, or direct indexing portfolios. This does not eliminate the concentrated stock risk, but it may improve the overall diversification of the household portfolio.