You Own Too Much of One Stock. Here Are the Four Ways Out, and What Each One Costs.

There are four practical ways to reduce a concentrated stock position. You can sell it outright. You can sell it in stages across tax years. You can contribute it to an exchange fund. Or you can sell covered calls against it while you decide. Every one of them costs something. An outright sale costs you the full tax bill now. Staged selling costs you the time you spend still holding the risk. An exchange fund costs you seven years of liquidity and a fee load well above an index fund. Covered calls cost you the upside above the strike price, and they can put the sale on the option’s schedule instead of yours.

In a taxable account, there is no version of this where you keep the gain, remove the risk, and pay nothing. Inside an IRA or a 401k the arithmetic changes completely, and most of what follows stops applying.

I am Ron McCoy, founder of Freedom Capital Advisors, a Florida-registered investment adviser. I have been in this industry for nearly 40 years, independent and fiduciary since 2012. In that time I have sat across from a lot of people holding one very large position and one very uncomfortable feeling about it. What follows is the honest version of the menu.

First, Be Clear About What the Risk Actually Is

Concentration risk is the risk that one company’s specific problems become your entire financial plan’s problems.

That is a different thing from market risk. If the market falls 20%, a diversified portfolio falls with it and recovers with it. If one company misses an earnings quarter, loses a patent case, gets a new competitor, or hires the wrong CEO, that stock can fall 40% in a week while the market does nothing at all. You are not being paid extra to take that risk. The market compensates you for risk you cannot diversify away. Single-company risk is the kind you can.

The number I watch is what percentage of your liquid net worth the position represents, not what percentage of your brokerage account it represents. Someone with 30% of one account in a single stock is in a different situation depending on whether that account is 10% of their wealth or 90% of it.

I wrote about the general shape of this problem in mitigating concentration risk in large portfolios. This article is about what you actually do.

Where the Position Lives Changes the Answer

Before anything else, find out which account the stock is in. The menu above is written for a taxable brokerage account, and it stops making sense anywhere else.

Inside a traditional IRA or a 401k, selling a stock is not a taxable event. There is no gain to realize, no basis to work around, no bracket to manage. You sell the position, you buy something diversified, and nothing gets reported. The entire reason people agonize over a concentrated position disappears. If your concentrated stock is in a retirement account, the answer is to sell it, and the only real question left is what you buy instead.

A Roth IRA is the cleanest case on the board. No tax on the sale, no tax on the growth afterward, no tax on qualified withdrawals later. There is no tax argument for carrying single-company risk in a Roth, because there is no tax.

A traditional IRA does get taxed eventually, at ordinary income rates on withdrawal. But that tax is owed on the account whether you hold one stock or forty. It is not a cost of fixing the concentration, so it has no business influencing whether you fix it.

This matters more than it sounds like it does, because most people with a concentration problem hold the position in more than one place. A retiree with company stock in a rollover IRA and more of the same stock in a taxable account has two problems with two different answers. Sell the retirement shares first. They cost nothing to sell. Then work the taxable shares with the tools below, and you have already cut the position down before triggering a dollar of tax.

One Exception: Company Stock Still Sitting in a 401k

If the concentrated position is your former employer’s stock and it is still inside that employer’s plan, stop before you roll it anywhere.

A provision called net unrealized appreciation can let you distribute those shares in kind and pay long-term capital gains rates on the appreciation instead of ordinary income rates on every dollar. The sequencing rules are strict, and a routine rollover done the normal way at the normal time destroys the election permanently. I wrote up how it works and when it backfires in company stock in your 401k and the rollover that destroys your net unrealized appreciation election.

Why People Get Stuck

Almost everyone who calls me about a concentrated position already knows they have a problem. They have known for years. They are stuck for one of three reasons, and it helps to name yours before you pick a solution.

The first is the tax bill. The position has a low cost basis and selling means writing a check. This is the reason people say out loud.

The second is loyalty. The stock came from a career, a founder’s stake, or an inheritance. Selling feels like a judgment on something that mattered.

The third is the one nobody says: the stock has been good to them, and they think it will keep being good to them. That is a track record being mistaken for a forecast.

Here is the piece of arithmetic that tends to move people. The tax is a percentage of your gain. The concentration risk is a percentage of everything. Paying 20% of a gain to eliminate a risk that could take 40% of the whole position is not an obviously bad trade, and most people have never framed it that way.

Option One: Sell It Outright

The simplest answer, and the one nobody wants.

What it costs. The tax comes due in the year you sell. For 2026, the long-term capital gains brackets are 0% on taxable income up to $49,450 for a single filer and $98,900 for a married couple filing jointly, 15% from there up to $545,500 single and $613,700 joint, and 20% above those thresholds. On top of that, the 3.8% net investment income tax applies to higher earners, and your state may take its own cut. A large sale can also push you into a higher bracket and raise your Medicare premiums two years later.

What it buys. The concentration risk is gone the day the trade settles. No holding period. No lock-up. No option to manage. You own a diversified portfolio the following week and you never think about that company again.

When it is right. When the position is large enough that a bad year would change how you live. When you are already in a low-income year, between a retirement date and the start of Social Security, and the bracket space is sitting there unused. When you have carryforward losses to offset against. And when you have honestly asked whether you would buy that much of that stock today at today’s price with cash, and the answer is no.

That last question is the most useful one in this whole article. If you would not buy the position today, you are holding it out of inertia, and inertia is not a strategy.

Option Two: Sell It in Stages

Spread the sale across several tax years so you control which bracket the gain lands in.

What it costs. Time, and the risk you carry while time passes. A three-year unwind means you are still holding two thirds of the problem in year two. If the stock drops 40% in month four, you saved tax on a much smaller number, and the savings will not feel like a win.

There is a second cost that is more human than financial. Staged sales stall. When the stock runs up, the client wants to let it run. When it falls, the client wants to wait for a recovery. Both instincts point at the same behavior, which is not selling. I have watched more than one five-year plan turn into a five-year hold. If you go this route, the schedule has to be written down in advance and executed on dates, not on feelings.

What it buys. Real control over your marginal rate. If you can keep each year’s gain under the 15% threshold, or under the net investment income tax threshold, or below the point where your Medicare premiums step up, the difference over several years is meaningful. It also gives your CPA room to pair sales with charitable gifts, loss harvesting elsewhere, or a low-income year.

When it is right. When the position is large but not existential, when your bracket situation is genuinely variable year to year, and when you have the discipline to follow a written schedule.

Option Three: Contribute It to an Exchange Fund

This is the option most people have never heard of, so it needs more explanation than the others.

An exchange fund is a partnership. You contribute your shares. Other investors contribute theirs. Nobody sells anything, so nobody triggers a gain. In exchange you receive an interest in the partnership, which holds all of those different stocks. Your single-stock exposure becomes exposure to a pool. The tax code provision that allows this is Section 721.

What it costs. More than most people expect.

You are committing for seven years. Exit early and the IRS can treat your original contribution as a taxable sale, which means you get your stock back and owe the tax you were trying to defer. Seven years is a long time to be unable to reach your own money.

The fund has to hold at least 20% of its assets in qualifying illiquid investments, which in practice usually means real estate. That requirement exists to keep the fund from being classified as an investment company, which would trigger immediate taxation. So a slice of your money is in an asset class you did not choose.

Fees run roughly 0.40% to 1.50% annually for management, and administrative, placement, and servicing charges can add another 0.25% to 0.50%. Compare that to 0.03% to 0.10% for a broad index fund and compound the difference over seven years.

Your basis carries over. The gain is deferred, not erased. When you eventually sell the diversified basket you receive at the end, the original low basis is what you are selling against.

There are eligibility gates. You generally need to be an accredited investor, meaning $200,000 in annual income, $300,000 jointly, or $1 million in net worth excluding your home. Many traditional funds require qualified purchaser status, which is $5 million in investments. Traditional minimums run $500,000 to $1 million, though newer platforms have come down toward $100,000.

What it buys. Diversification without a current tax event. That is the whole pitch, and for the right situation it is a real one.

When it is right. A very large, very low basis position, held by someone who does not need the money for at least seven years, who understands they are solving the diversification problem and deferring the tax problem rather than solving both. We do not sell exchange funds and we earn nothing if a client uses one, which is exactly why I am comfortable telling you where the costs are buried.

Option Four: Sell Covered Calls Against the Position

This one requires a correction before anything else, because it is the most misunderstood item on the list.

A covered call does not get you out of a concentrated position. What it does is pay you while you decide, and commit you to a sale price in advance.

Here is the mechanism. You own the shares. You sell someone else the right to buy those shares from you at a set price by a set date. They pay you a premium for that right. If the stock stays below that price, the option expires and you keep the premium and the shares. If the stock rises above that price, your shares get called away and you sold at the price you agreed to.

What it costs. Your upside above the strike price is capped. If the stock doubles, you did not participate above the strike. Assignment can happen on the option’s schedule, not yours, which means the sale and its tax consequence can land in a year you did not plan for. That timing risk is a taxable-account problem. In a retirement account, assignment carries no tax consequence at all, which is part of why the retirement shares are the easy ones to work with. Premium is not guaranteed income; it is compensation for accepting a defined obligation, and it varies with the stock’s volatility and the market’s mood.

There is also a tax wrinkle here that catches people. Calls that are deep in the money or very short dated can fail to qualify under the qualified covered call rules, which can affect the holding period on the underlying shares and the qualified status of dividends you receive. This is a conversation to have with your CPA before you write the first contract, not after.

And the limitation that matters most on a concentrated position: the premium cushions a decline, it does not floor one. Collecting premium lowers your effective cost basis, so the stock has to fall further before the position is underwater than if you held it uncovered. That cushion is real, and it is exactly the size of the premium. No larger. If the stock falls 40%, the premium does not come close to covering it. Covered calls are income and risk management on a concentrated position. They are not insurance against the thing you are actually worried about, which is one company having a very bad year.

What it buys. Three things. Income from the premium while you hold, which lowers your effective cost basis and cushions a modest decline. A disciplined exit, because writing a call at a price you would be happy to sell at converts a decision you keep postponing into a decision that executes itself. And, on a position you are unwinding in stages anyway, a way to get paid for the waiting.

When it is right. When you have already decided to reduce the position and you are willing to sell at a specific price. Writing calls on a position you have no intention of ever selling is a different strategy with a different risk profile. We wrote about how we think about this in why we sell covered calls, and why “covered” is the whole point.

Two Others Worth Knowing About

A collar pairs a covered call with a protective put. The premium from the call helps pay for the put, and the put sets a floor under the position. You give up upside above the call strike to put a limit on the downside. It costs more than a covered call alone and it does not remove the position or the eventual tax.

Charitable gifting works well specifically because of the low basis that makes selling painful. Appreciated shares contributed to a donor-advised fund or a charitable remainder trust move out of your portfolio without you realizing the gain. If you were going to give anyway, giving the concentrated stock instead of cash is usually the more efficient way to do it. Your CPA and estate attorney should be in that conversation from the start.

An Example From Practice

Some years ago a couple came in with roughly 60% of their liquid net worth in the stock of the company one of them had worked at for three decades. The shares sat in a taxable brokerage account, so the full menu applied. The stock was in a good company and legitimate business that they had watched compound for years and they had every reason to feel loyal to it.

They had also been meaning to do something about it since 2016.

What finally moved them was not a tax projection. It was one question: if that stock fell by half, would you still retire on schedule? The answer was no. That reframed the whole conversation, because they had been treating the decision as a tax question when it was actually a retirement date question.

We built a written schedule, sold in tranches across three tax years with their CPA sizing each year’s realization, and wrote covered calls at prices they were content to sell at on the shares still waiting their turn. Two of the three tranches ended up going through assignment rather than an outright sale, which is exactly what the calls were there to do.

The details of that plan were specific to their basis, their bracket, and their timeline. Yours will be different. The framework is what transfers.

How I Would Choose

Start with two questions before any of the tools. Which account is it in, and how big is it. If the shares are in a retirement account, sell them and move on; nothing else in this article is your problem. For taxable shares, the size question comes before the tax question. Work out what percentage of your liquid net worth the position is, and then ask what happens to your plan if that position falls by half. If the honest answer is that your plan breaks, the position is too large and everything else is a detail about implementation.

Then match the tool to the constraint. If your constraint is bracket management, stage the sales and put the schedule in writing. If your constraint is that the basis is near zero and the position is very large and you genuinely do not need the money for a decade, an exchange fund is worth pricing out. If your constraint is that you cannot make yourself pull the trigger, covered calls will make the decision for you at a price you chose while you were thinking clearly. If your constraint is that you were going to give money away anyway, give the shares.

And if none of those constraints really apply, and you are just uncomfortable writing the check, sell the stock. Pay the tax. Sleep better.

Frequently Asked Questions

How much of one stock is too much?

There is no universal number, but the useful test is not a percentage of your account. It is a percentage of your liquid net worth, and the question is whether a 50% decline in that one position would change your retirement date or your standard of living. If it would, the position is too large regardless of what the percentage says.

What if my concentrated stock is in an IRA or 401k?

Then most of this article does not apply to you, in a good way. Selling inside a retirement account triggers no capital gains tax, so you can diversify the position immediately at no tax cost. The one exception is employer stock still held inside that employer’s 401k, where a net unrealized appreciation election may produce better long-term treatment than a standard rollover. That decision has to be made before the money moves.

Can I reduce a concentrated stock position without paying capital gains tax?

In a taxable account you can defer the tax, not erase it. In a retirement account the question does not arise, because sales inside an IRA or 401k are not taxable events. For taxable shares, an exchange fund under Section 721 lets you diversify without a current taxable event, but your original cost basis carries over to the new interest and you are locked in for seven years. Charitable strategies such as a donor-advised fund can move appreciated shares out without you realizing the gain, but the money goes to charity rather than back to you.

Do covered calls protect me if the stock falls?

Partially. The premium you collect lowers your effective cost basis, so the stock has to fall further before the position shows a loss than it would if you owned the shares uncovered. That cushion is real, and it is exactly the size of the premium. It is not a floor. A decline larger than the premium still costs you, and a severe decline costs you nearly all of it. Covered calls reduce risk relative to holding the stock outright; they do not remove it. A collar, which pairs the call with a protective put, is the structure that actually sets a floor, and it costs more.

What are the 2026 capital gains tax rates on a concentrated stock sale?

For 2026, long-term capital gains are taxed at 0% on taxable income up to $49,450 for single filers and $98,900 for married couples filing jointly, 15% up to $545,500 and $613,700 respectively, and 20% above those levels. A 3.8% net investment income tax may also apply, along with any state tax. Your actual result depends on your full return, which is a question for your CPA.

How long does an exchange fund lock up my money?

Seven years. Exiting before then can cause the IRS to treat your original contribution as a taxable sale, which returns your stock and the deferred tax bill along with it. Exchange funds also carry annual fees substantially higher than index funds and must hold at least 20% of assets in qualifying illiquid investments, typically real estate.

Talk It Through

If you are holding a position that is larger than you are comfortable with, the useful first step is arithmetic rather than a recommendation. What percentage of your wealth does it represent. What is your basis. What does your bracket look like over the next few years. What breaks if the stock has a bad year.

We do that work in a conversation before anyone becomes a client, and we are independent, so we have no product to place and no commission riding on the answer.

Disclosure: Freedom Capital Advisors is a Florida-registered investment adviser. This article is for educational purposes and is not individualized investment, tax, or legal advice. Tax figures reflect 2026 federal thresholds and are subject to change; consult your CPA regarding your own situation. Investing involves risk, including the possible loss of principal. Options strategies, including covered calls and collars, carry their own risks and are not suitable for every investor. Exchange funds are illiquid, carry substantial fees, and are available only to investors who meet eligibility requirements. No strategy described here guarantees any result.