After 30 years in financial planning, I’ve seen the difference between clients who understand leverage and those who liquidate at the worst time. Most retirees’ instinct is to sell stock when they need cash. But in 2026, that sale could trigger Medicare IRMAA surcharges on top of 15-20% capital gains taxesโeffectively doubling your cost. The wealthy don’t sell; they borrow. By using a Securities-Based Line of Credit (SBLOC) to access cash, you keep your Modified Adjusted Gross Income (MAGI) below the $218,000 (couple) threshold, avoiding the “Medicare surcharge spike” that can cost $5,000-$10,000+ in premiums over two years. This isn’t aggressive tax avoidanceโit’s financial engineering that works within the rules, especially with the new 2025 tax law changes.
Capital gains from selling assets increase your Modified Adjusted Gross Income (MAGI). If that spike pushes you over an income cliff, you don’t just pay capital gains tax. You trigger a Medicare surcharge that can cost you and your spouse thousands of dollars in premiums for an entire year.
Here is the bottom line: Wealthy investors don’t sell; they borrow.
By using a Securities-Based Line of Credit (SBLOC) or a HELOC, you can access cash without generating taxable income. No income means no MAGI increase, which means no IRMAA surcharge.
โก The “Liquidity Arbitrage” Strategy
- The Problem: Selling assets generates capital gains, which increases MAGI and can trigger IRMAA surcharges.
- The Solution: Borrowing against your portfolio (SBLOC) or home (HELOC) provides tax-free cash flow that does not appear on your tax return.
- The Math: Paying SOFR + 2% interest on a loan is often cheaper than paying 15% capital gains tax plus a $4,000 Medicare surcharge.
- The Risk: Leverage adds risk. If the market crashes, you could face a maintenance call. This strategy requires a healthy buffer.
Key Takeaways Ahead
โก Asset Location at a Glance
๐ก Michael Ryan Money Tip
Think of your portfolio as a well. You can take water out by selling (which stirs up the bottom, causing taxes) or by dipping a bucket (borrowing, which doesn’t disturb the well’s contents). Choose the bucket for cleaner, tax-free access.
Why Selling is Expensive (The Double Tax)
When you sell a winning investment in a taxable account, you get hit twice.
- Capital Gains Tax: You pay 15% or 20% on the profit.
- The IRMAA Surcharge: The gain is added to your MAGI. If you cross a threshold (like $218,000 for a couple in 2026), your Medicare premiums jump.
This is the “Phantom Tax” of retirement. A $50,000 gain might look like it “only” costs $7,500 in taxes, but if it pushes you into Tier 3 IRMAA, it could add another $6,000 in premium costs. Your effective tax rate just doubled.
๐ก Avoid The “Double Tax” & Protect Your Medicare
One clear financial move each week โ straight from 28 years of seeing what goes wrong.
- โ Uncover hidden costs like IRMAA surcharges before they hit.
- โ Learn advanced strategies wealthy investors use to preserve capital.
- โ Get actionable steps to access cash without triggering taxes.
The Math: Interest vs. Surcharges
Is it really smart to pay interest to borrow your own money? Often, yes. Let’s run the numbers for a married couple needing $100,000 in liquidity.
Scenario: They are at the top of Tier 1 ($272,000 MAGI). Realizing a $100,000 gain pushes them to Tier 3.
| Cost Factor | Option A: Sell Assets | Option B: Borrow (SBLOC) |
|---|---|---|
| Capital Gains Tax (20%) | $20,000 | $0 |
| NIIT Surcharge (3.8%) | $3,800 | $0 |
| IRMAA Impact (1 Year) | ~$5,700 (Tier Jump) | $0 |
| Loan Interest (7% for 1 Year) | $0 | $7,000 |
| TOTAL COST | $29,500 | $7,000 |
๐ Quick Stat: Cost Comparison (Sell vs. Borrow)
| Cost Factor | Option A: Sell Assets | Option B: Borrow (SBLOC) |
|---|---|---|
| Capital Gains Tax (20%) | $20,000 | $0 |
| NIIT Surcharge (3.8%) | $3,800 | $0 |
| IRMAA Impact (1 Year) | ~$5,700 (Tier Jump) | $0 |
| Loan Interest (7% for 1 Year) | $0 | $7,000 |
| TOTAL COST | $29,500 | $7,000 |
Verdict: Borrowing saves over $22,000 in immediate costs. Plus, your assets stay invested, potentially growing and offsetting the interest cost entirely.
The Verdict: Borrowing saves over $22,000 in immediate costs. Even if you hold the loan for two years, you come out ahead. Plus, your assets stay invested, potentially growing and offsetting the interest cost entirely.
Tools of the Trade: SBLOC vs. Margin vs. HELOC
Not all debt is the same. Here is how to choose the right tool for IRMAA avoidance.
Securities-Based Line of Credit (SBLOC):
Also called a “Pledged Asset Line” (PAL).
- Best For: Fast, flexible liquidity.
- Pros: Lower rates than margin (usually SOFR + Spread), no setup fees, interest-only payments.
- Cons: Callable if market drops. Cannot be used to buy more stock (unlike margin).
- Verdict: The gold standard for bridging cash flow needs without triggering taxes.
Home Equity Line of Credit (HELOC):
- Best For: Homeowners with significant equity but smaller portfolios.
- Pros: Interest may be deductible (if used for home improvements), stable collateral (your house doesn’t fluctuate like stocks).
- Cons: Slower approval process, upfront costs, rates are often variable.
Margin Loan:
- Best For: Traders (Not recommended for IRMAA planning).
- Pros: Instant.
- Cons: Highest rates, strict maintenance calls. Avoid this for long-term cash needs.
โ ๏ธ Risk Warning: The “Safe Zone” Rule
Borrowing is not free money. If your portfolio drops significantly (usually 30-40%), the bank can issue a “maintenance call,” forcing you to sell assets at the bottom of the market to pay back the loan.
Safety Rule of Thumb: To weather a 2008-style crash without a call, keep your borrowing below 30% of your portfolio’s value. Never max out your credit line.
The 2026 “Car Loan Trap” (New Law Alert)
With the passage of the One Big Beautiful Bill Act (OBBBA) in July 2025, there is a new tax deduction for car loan interest on U.S.-made vehicles.
๐ Bad Advice: Using SBLOC for a Car Loan
Crucial Warning: Interest on an SBLOC used to buy a car is NOT deductible, even if you buy a qualifying car. The law requires the loan to be secured by the vehicle’s VIN. If you use your portfolio line of credit to buy a luxury car, you miss out on this deduction. Compare the after-tax cost of dealer financing vs. your SBLOC rate carefully.
Frequent Reader Questions About SBLOCs & IRMAA
๐ Advanced IRMAA Strategies
Borrowing is powerful, but it works best when combined with other tactics:
- Capital Gains Spiking Your IRMAA? Use Tax-Loss Harvesting โ How to offset the gains you do realize.
- How to Structure Your Portfolio to Permanently Avoid IRMAA โ Keep your income-generating assets hidden from Medicare.
Does the loan proceeds count as income?
No. Loan proceeds are not taxable income. Receiving $100,000 from a line of credit does not increase your AGI or MAGI by a single penny. It is invisible to the IRS and Medicare.
Can I deduct the interest on an SBLOC?
It depends on what you buy. Under IRS tracing rules, if you use the loan proceeds to buy taxable investments (like stocks or a rental property), the interest is generally deductible as “Investment Interest Expense” (Form 4952). If you use it for personal expenses (like a vacation, wedding, or car), the interest is not deductible.
What if rates stay high?
This strategy works best when the cost of borrowing is lower than the cost of selling (taxes + lost growth + IRMAA). If SOFR spikes to 8%+, the math might change. You must re-evaluate the arbitrage annually.
Can I use a line of credit against my IRA or 401(k)?
Generally, no. Most brokerages do not allow SBLOCs against IRA or 401(k) assets because these accounts have strict withdrawal rules. However, some custodians allow loans against 401(k)s under ERISA rules (called 401(k) loans), but these must be repaid on a fixed schedule or they become taxable distributions. IRAs do not permit loans at all. The SBLOC strategy works best for taxable brokerage accounts where you have full flexibility. If you want to access retirement funds without triggering IRMAA, focus on positioning your portfolio: keep income-generating assets (bonds, dividends) in tax-deferred accounts and hold stocks in taxable accounts to reduce MAGI through SBLOC borrowing.
Conclusion: Think Like a CFO
Wealthy families have used the “Buy, Borrow, Die” strategy for decades to minimize estate taxes. You can use a “Buy, Borrow, Bridge” strategy to minimize IRMAA.
By treating your portfolio as a balance sheet rather than just a piggy bank, you unlock liquidity without the tax drag. You keep your MAGI low, your Medicare premiums at the base tier, and your assets working for you.
Your Next Steps:
- Contact your brokerage and ask about an SBLOC or Pledged Asset Line (not just margin).
- Calculate your “IRMAA Cost” of selling assets using the IRMAA Calculator.
- Compare that cost to the annual interest on a loan (SOFR + Spread).
- If the loan is cheaper, borrow the cash and leave your stocks alone.
For a complete picture of your borrowing power, use our Net Worth Calculator to see your eligible collateral.
๐ก Avoid The “Double Tax” & Protect Your Medicare
One clear financial move each week โ straight from 28 years of seeing what goes wrong.
- โ Uncover hidden costs like IRMAA surcharges before they hit.
- โ Learn advanced strategies wealthy investors use to preserve capital.
- โ Get actionable steps to access cash without triggering taxes.
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Note: The content provided in this article is for informational purposes only and should not be considered as financial or legal advice. Consult with a professional advisor or accountant for personalized guidance.