H&R Block Employees: Exploring Exchange Funds and Tax-Efficient Strategies for Deferred Gains

Healthcare Provider Update: H&R Block's Healthcare Provider and Cost Increase Overview Healthcare Provider: H&R Block employees typically rely on major insurance carriers for their health benefits, though specific providers may vary by location. Generally, the company integrates offerings from national insurers such as UnitedHealthcare, Anthem Blue Cross Blue Shield, and others to provide comprehensive medical, dental, and vision coverage. Healthcare Cost Increases in 2026: As 2026 approaches, H&R Block employees may face significant increases in healthcare costs, primarily driven by anticipated record hikes in ACA marketplace premiums. With reports indicating potential rate increases exceeding 60% in some states and an overall expected rise of 18%, many employees could see out-of-pocket expenses swell substantially-by as much as 75% for those losing enhanced federal subsidies. This surge in healthcare expenses underscores the pressing need for H&R Block workers to review their benefits and explore strategic options, such as optimizing Health Savings Accounts (HSAs), to mitigate personal financial impacts. Click here to learn more

In this article we will discuss:

1. Personalized and adaptable tax-efficient planning for H&R Block employees.

2. Deferred gains and tax-free diversification strategies, including §721 Exchange Funds and §351 ETF conversions.

3. Additional methods such as charitable donations, remainder trusts, and collars for managing capital gains.

Patrick Ray, a Wealth Enhancement financial advisor, highlights the importance of personalized tax-efficient planning when determining the best way to mitigate capital gains taxes on a highly valued position. 'Retirement planning is not a one-size-fits-all approach,' he notes. 'It requires tailored strategies that address unique factors such as tax-efficient withdrawals.' For H&R Block employees, effective planning—which can include using tax-efficient tools like donor-advised funds or donating appreciated shares to charity selectively—means taking a customized approach based on your unique tax bracket, liquidity requirements, and long-term objectives, particularly when it comes to managing significant capital gains.

For his part, Wealth Enhancement advisor Tyson Mavar emphasizes the necessity of adaptable planning tools, pointing out that traditional guidance could be misaligned. 'Retirement planning is particularly complex for investors juggling estate considerations and significant capital gains,' he says. For H&R Block professionals, this viewpoint encourages investigating tactics that provide customization, timing flexibility, and tax efficiency based on your financial needs, such as charitable remainder trusts, tax-loss harvesting, or conversions into exchange traded funds (ETFs).

1. Deferred Gains Partnership §721 Exchange Funds (Swap Funds)

Mechanism and Advantages

• Tax-deferred diversification : Allows you to receive shares in a diversified portfolio without paying capital gains tax immediately by contributing a concentrated stock position to a pooled exchange fund.

• Deferred gain : Your initial cost basis carries over pro rata, and taxes are postponed until you sell the shares of the diversified portfolio.

• Accessibility : Usually restricted to qualified or accredited buyers, frequently requiring sizeable minimum deposits (between $100,000 and $1 million or more).

• Hold period : Prior to redemption, funds typically impose a seven year lock-up.

• Diversification structure : To prevent being classified as an “investment company,” which would otherwise result in immediate taxation, exchange funds are frequently structured with about 20% in non-stock assets, such as real estate.

For H&R Block employees holding concentrated stock, this can provide a structured way to defer taxes while broadening exposure.

Restrictions

• Limited liquidity—capital remains locked in for the time being.

• High-net-worth investors are generally the only ones able to meet the fees and entry requirements.

• You still retain diluted exposure to your original position following the exchange, known as residual exposure.

2. Tax-Free Seeding Into Tax-Efficient Vehicles via Section 351 ETF Conversions

Mechanism and Advantages

• Tax-free transfer : If IRS regulations are followed, you can trade shares of an ETF for a diversified portfolio (such as separately managed account holdings) without recognizing a gain.

• Diversification guidelines : The portfolio must satisfy §368(a)(2)(F)'s 25/50 diversification test, which states that no single holding may account for more than 25% of the portfolio’s value and that the top five holdings cannot exceed 50%.

• Control requirement : Immediately after the exchange, contributors must jointly own at least 80% of voting power and 80% of all share classes.

• Continuous in-kind rebalancing : The ETF structure allows for tax-efficient rebalancing through in-kind transactions, postponing future gains until ETF shares are sold.

For H&R Block investors, these mechanisms can be especially valuable if they are already well diversified and seeking long-term tax efficiency.

Restrictions

• Eligibility : Only well-diversified portfolios qualify; concentrated single-stock holders may not benefit unless already diversified.

• Cost and complexity : Requires operational, fund-structuring, and legal setup, often used by institutions or wealthy investors.

3. Collars and Charitable Giving Strategies

High-income investors often use strategies like charitable giving, donor-advised funds, charitable remainder trusts, and collars with borrowing to manage capital gains taxes.

• Giving to charity : Donating appreciated stock directly or through a donor-advised fund can result in a charitable deduction and reduce exposure to capital gains tax.

• Charitable remainder trusts (CRTs) : These generate income while deferring capital gains taxes, with the remainder eventually donated to charity.

• Borrowing and collars : Borrowing against stock provides liquidity without a taxable sale, while collars set boundaries on downside risk. These tactics must be properly structured to prevent constructive sale treatment under §1259.

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Sources:

1. Kiplinger. ' 721 Exhange to Defer Taxes: Pros and Cons ,' by Daniel Goodwin. August 28, 2024.

2. Kitces. ' Using Section 351 Exchanges To Tax-Efficiently Reallocate Portfolios With Embedded Gains ,' by Ben Henry-Moreland and Brent Sullivan. March 12, 2025.

3. Vanguard. ' Charitable gifting basics: Getting the most from your giving ,' by Ashley Greene, Garrett Horbron. August 2025.

4. Investopedia. ' The Collar Options Strategy Explained in Simple Terms ,' by Akhilesh Ganti. May 17, 2025.