Carvana Employees: Smarter Ways to Manage Taxes on Appreciated Stock
Healthcare Provider Update: Carvana's healthcare provider is Aetna. As we look ahead to 2026, significant increases in healthcare costs are anticipated, primarily due to the expiration of enhanced premium subsidies under the Affordable Care Act (ACA). Without these subsidies, many enrollees could see their out-of-pocket premium payments rise by over 75%, exacerbating the financial burden on consumers. Additionally, insurers are projecting higher medical costs due to inflation and increased utilization of healthcare services, leading to average premium hikes that could reach 20% or more across various states. This combination of factors signals a challenging landscape for Carvana's employees and many other Americans seeking affordable health coverage.
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'Carvana employees with concentrated stock positions may benefit from thoughtful tax planning that allows for tax deferral while balancing liquidity, compliance, and long-term compounding,' Wesley Boudreaux, a representative of The Retirement Group, a division of Wealth Enhancement.
'Carvana employees who hold highly-appreciated stock may want to consider tax-efficient strategies that help mitigate their liabilities while aligning with their overall retirement goals,' Patrick Ray, a representative of The Retirement Group, a division of Wealth Enhancement.
In this article, we will discuss:
How taxes can affect investment returns, particularly on concentrated stock positions.
Exchange funds and options-based strategies as methods for tax deferral and diversification.
Alternative planning techniques outside ETFs, including charitable trusts and gifting strategies.
By Carlos Hernandez, Wealth Enhancement advisor
When it comes to driving portfolio returns, many investors aim to keep management fees low by investing in low-cost index funds and exchange-traded funds (ETFs). While fees matter, however, the real culprit for lower-than-anticipated performance is taxes.
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Wealth Enhancement advisor Carlos Hernandez explains: 'By losing less to taxes each year, investors have access to more capital that can continue to compound over time. This makes tax deferral an important part of an effective financial plan.' Carvana employees looking for long-term growth strategies could benefit by understanding how to better manage their investment tax burdens.
Trade Money
One area where taxes can take a toll is on the sale of company stock or other concentrated investment positions. Carvana professionals looking to diversify could face significant capital gains taxes on an outright sale. One way to diversify without triggering immediate capital gains is through exchange funds. By contributing their highy-appreciated stock to a pooled fund, investors can trade their concentrated holdings for shares in a diverse basket of securities. This method can be used by Carvana employees who want to diversify while postponing taxable events.
Although this method allows for tax deferral, it also requires investors to hold the exchange fund for a period of time, typically seven years.
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This could create a challenge for investors who require liquidity. Additionally, these funds are often exclusively accessible to wealthy, accredited investors—something Carvana executives should carefully evaluate.
Funds Based on Options
Another way to mitigate taxes on the sale of highly-appreciated stock is by using options contracts. The idea is to hedge risk with put options while covering the cost of those puts by selling call options—a strategy called 'collaring'. From there, the strategy reverses, with investors selling put options and using the proceeds to buy call option on an equity or bond index.
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If managed effectively, this helps to diversify a concentrated portfolio while still maintaining liquidity.
Given the complexity of this strategy, meticulous planning is necessary. It's generally recommended that investors work with an experienced financial advisor before pursuing this approach.
Things to Be Aware of
Although these strategies can be beneficial for Carvana employees who hold highly-appreciated stock, caution is recommended. There are costs associated with these approaches, and potential liquidity risks. Additionally, the IRS may eventually contest such arrangements because their tax status has not been thoroughly examined—something Carvana retirees should keep top of mind.
'Tax drag reduction strategies can be effective, but they must be assessed through the lens of risk, liquidity, cost, and compliance,' warns Carlos Hernandez. What is appealing in theory must hold up to inspection in the real world.
Alternative Strategies
Although they show promise, investors with highly-appreciated stock or those looking to postpone gains have other alternatives besides exchange funds or options. Other tactics could include:
- Prepaid variable forwards (subject to IRS regulations, contracts to sell at predetermined terms in the future).
- Charitable remainder trusts (CRTs), which allow investors to donate appreciated stock to a charitable trust and receive a stream of regular income in return.
- Donor-advised funds (DAFs), which provide investors with a tax deduction for the fair market value of the appreciated stock they donate.
- Other gifting techniques, such as direct donations to charity or family.
Each has its own set of guidelines, advantages, and disadvantages. To limit unnecessary taxes or violating the constructive sale regulations, careful planning is necessary for Carvana professionals managing complex portfolios.
The Bottom Line
Although the movement to mitigate the tax burden on investments is not new, the instruments are changing. Both exchange funds and options-based structures offer investors a way to manage tax liabilities, especially for Carvana employees who hold highly-appreciated stock.
In the end, taxes are unavoidable. However, with the correct set of instruments, they can be controlled and postponed. 'The real value comes from aligning tax strategy with investment strategy,' summarizes Carlos Hernandez.
Carvana offers a 401(k) plan that allows employees to save for retirement through pre-tax and/or Roth contributions, providing a tax-advantaged way to build savings.
Does Carvana match employee contributions to the 401(k) plan?
Yes, Carvana provides a company match on employee contributions to the 401(k) plan, helping employees increase their retirement savings.
How can I enroll in Carvana's 401(k) plan?
Employees can enroll in Carvana's 401(k) plan through the employee benefits portal or by contacting the HR department for assistance.
What types of investment options are available in Carvana's 401(k) plan?
Carvana's 401(k) plan offers a range of investment options, including mutual funds, target-date funds, and other investment vehicles to suit various risk tolerances.
Can I change my contribution percentage to Carvana's 401(k) plan at any time?
Yes, employees can change their contribution percentage to Carvana's 401(k) plan at any time, typically through the employee benefits portal.
What is the vesting schedule for Carvana's 401(k) company match?
Carvana has a specific vesting schedule for the company match, which means that employees must work for a certain period before they fully own the matched contributions.
Are there any fees associated with Carvana's 401(k) plan?
Yes, Carvana's 401(k) plan may have administrative and investment fees, which are disclosed in the plan documents provided to employees.
How often can I review my 401(k) account with Carvana?
Employees can review their 401(k) account with Carvana at any time through the plan's online portal, allowing for regular monitoring of investments.
What happens to my Carvana 401(k) if I leave the company?
If you leave Carvana, you have several options for your 401(k), including rolling it over to another retirement account, cashing it out, or leaving it in the Carvana plan if permitted.
Does Carvana allow loans against the 401(k) plan?
Yes, Carvana's 401(k) plan may allow employees to take loans against their vested balance, subject to specific terms and conditions.
With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.
Carvana's 401(k) Plan:
Carvana offers a traditional 401(k) plan, allowing employees to contribute a portion of their salary to a retirement savings account, which grows tax-deferred until withdrawal. In 2024, employees can contribute up to $23,000, with an additional catch-up contribution of $7,500 for those aged 50 or older, totaling $30,500. The company likely offers a match on employee contributions, though specific match details were not found. The plan includes a variety of investment options, typically mutual funds or ETFs, chosen by the employee from a list curated by the plan administrator (Annuity.org) (MissionSquare).
Pension Plan:
Carvana does not offer a traditional defined benefit pension plan as part of its retirement benefits package. Instead, they focus on the 401(k) plan, which aligns with the shift in many modern companies from defined benefit plans to defined contribution plans. The emphasis is on employee-driven retirement savings with employer support, rather than a fixed monthly pension payout
Restructuring Layoffs (2023-2024): In response to economic pressures, Carvana has been undergoing significant restructuring efforts, including layoffs and reduction in work hours for many employees. These layoffs began in 2022 with the cutting of approximately 4,000 jobs and have continued into 2023 and 2024. The company has been discreetly reducing its workforce to combat financial losses, driven by increased inflation and rising interest rates. Carvana's stock has also suffered, with a 95% drop over the past year, further complicating its financial stability. Addressing these layoffs is crucial because they reflect broader economic challenges that could affect both current employees and investors, particularly in an unstable economic environment (markets.businessinsider.com).
Benefit, Pension, and 401(k) Changes (2023-2024): Carvana has also been exploring changes to its employee benefits, particularly in terms of retiree health benefits. The company, like many others, is navigating the legal landscape concerning the reduction or elimination of post-employment health care benefits. For current and former employees, understanding these changes is essential as federal law does not protect retiree health benefits unless explicitly promised by the company. Such shifts in benefit structures underscore the importance of staying informed, especially given the volatile economic and political environment that impacts retirement planning
Carvana offers a comprehensive health benefits package including medical, dental, and vision insurance. They also provide access to telemedicine services and an Employee Assistance Program. There were updates to their benefits plan in 2023 to include more mental health resources and enhanced telehealth options.
For more information you can reach the plan administrator for Carvana at 1930 W. Rio Salado Parkway Tempe, AZ 85281; or by calling them at +1 800-333-4554.
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