T-Bill Returns Without the Annual Tax Bill: The $12 Billion Fund Using an Options Trick

David Beren

Fri, July 24, 2026 at 11:58 PM GMT+3 5 min read

Quick Read

BOXX delivers T-bill-like returns as price appreciation rather than taxable interest, slashing top-bracket federal tax rates from 41% to 24% versus SGOV.
BOXX paid an unexpected taxable distribution in August 2024, and the IRS has publicly scrutinized box-spread treatment, making regulatory reclassification a live risk.
The tax-deferral advantage vanishes inside IRAs and 401(k)s, making BOXX's higher expense ratio pure friction for investors below the 24% bracket.
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Most investors who want cash-like returns in a taxable brokerage account default to the iShares 0-3 Month Treasury Bond ETF (NYSEARCA:SGOV) or a similar short-Treasury fund. SGOV holds actual bills, pays a distribution every month, and tracks the front end of the yield curve tightly. Owning SGOV is straightforward, and with the 3-month T-bill yielding 3.83% and the 1-year at 4.07%, the payout is real cash. The issue is what happens to that yield after taxes. A quieter competitor, the Alpha Architect 1-3 Month Box ETF (NYSEARCA:BOXX), has pulled in $13.03 billion in assets by targeting the same T-bill-like return through a structure that has, so far, delivered it as price appreciation rather than monthly taxable interest.

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Where SGOV Leaves Money on the Table

Monthly distributions from this fund are taxed as ordinary income. For an investor in the 37% federal bracket, plus the 3.8% net investment income tax, a headline yield near 4.07% can net closer to 2.4% before state tax. The fund itself is cheap, liquid, and government-backed. The structural drag is unavoidable: any short-Treasury ETF that pays interest monthly hands the IRS its share every April. Reinvesting distributions helps compounding but does nothing about the annual tax bill. SGOV's straightforward structure makes it a popular cash management tool, though its tax treatment is worth considering for high-income investors.

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How the Box Spread Works

Replacing bond interest with an options position that mimics it is what this fund does. A box spread combines a long call spread and a short put spread on the same index (usually the S&P 500) at the same strikes and expiration. Because the payoffs cancel out, the position locks in a fixed dollar amount at expiration, functioning as a synthetic zero-coupon loan whose implied yield tracks short-term rates through arbitrage. This ETF rolls these positions with a weighted average maturity under 90 days, and because they qualify as Section 1256 contracts, gains are treated 60% long-term and 40% short-term. In practice, the fund has delivered those gains as unrealized NAV appreciation, deferring the tax bill until shares are sold. BOXX offers a compelling tax-advantaged alternative to traditional money market funds for high-bracket investors.

The Math for a High Earner

Over the trailing 12 months, BOXX returned 4.06%, essentially matching the 1-year T-bill. On a $250,000 position, that is roughly $10,175 of gross return either way. In SGOV, the top-bracket effective rate on ordinary income runs to 40.8% federal all-in; on Section 1256 gains, the blended federal rate lands near 23.8%. The after-tax gap between the two treatments preserves meaningful yield for top-bracket holders on a stake of that size. Deferral compounds the gap further, because taxes not paid this year keep working.

The Tradeoffs Are Real

Historically, this fund has avoided distributions, but it did pay an unexpected taxable distribution in August 2024, contradicting the design principle that draws investors in the first place. The IRS has publicly scrutinized box-spread-as-cash-equivalent treatment, and retroactive reclassification is a live risk. Dr. Jim Dahle of The White Coat Investor advised in December 2024 that investors "wait 2-3 years to see how the IRS addresses its tax strategy before investing." At 0.19%, this ETF also costs more than SGOV, and the fund is backed by exchange-listed options counterparty structures, not by the U.S. Treasury. It carries no FDIC insurance and holds no actual Treasury bills. BOXX's tax efficiency comes with regulatory uncertainty that investors should weigh carefully.

Who Should Consider the Swap

The swap is aimed narrowly at taxable accounts held by investors in the higher federal brackets who plan to hold long enough for gains to qualify as long-term. Inside an IRA, 401(k), or any tax-deferred wrapper, BOXX solves nothing: SGOV's ordinary income treatment is irrelevant there, and the higher expense ratio just becomes friction. In taxable accounts below the 24% bracket, the after-tax gap narrows enough that SGOV's simpler structure and Treasury backing usually wins.

Making the Move Without Overcommitting

A partial rotation is often more defensible than a full swap. Keeping an SGOV core preserves the Treasury guarantee and the certainty of monthly cash, while routing new taxable cash to BOXX tests the deferral mechanic. BOXX has been operating since December 28, 2022, a track record that is meaningful but short. If the IRS moves against box-spread ETFs, or if BOXX starts paying recurring distributions, the entire thesis weakens. Until then, the fund offers a documented way for high-bracket investors to keep more of a yield that is otherwise heavily taxed. Whether that edge is worth the counterparty and regulatory risk is a judgment that depends on the reader's bracket, holding period, and tolerance for a rulebook that could still change.