Borrowing Against Your Portfolio: How to Raise Cash Without Triggering IRMAA
You need a large sum of cash. A tax bill comes due, a real estate opportunity appears, a business needs funding for a few months. The obvious move is to sell some investments. For a high-income retiree, that obvious move can be the expensive one, and the cost shows up in a place most people never connect to the sale: their Medicare premiums two years later.
Here is the better question we ask at Treveri Capital before anyone sells a thing. Do you actually need to own less of an investment, or do you just need cash for a while? If it is the second one, there is often a way to get the cash without selling at all.
This works best with the appreciated, liquid investments in your taxable brokerage account, your stocks, ETFs, bonds, and mutual funds. Those are the holdings you can borrow against, and they are also the ones that hand you a capital gains bill, and a higher MAGI, the moment you sell them. Retirement accounts like a 401k or IRA, real estate, apartments, and private investments such as private equity work differently and are not what we are talking about here. They each call for their own approach. But for that taxable brokerage balance, the one most people reach for first when they need cash, selling is often the most expensive way to do it.
Why selling can quietly raise your Medicare premiums
When you sell an appreciated investment, you realize a capital gain. That gain lands in your income for the year, which raises your Modified Adjusted Gross Income, or MAGI. MAGI is the number Medicare uses to decide whether you pay the standard Part B and Part D premium or a surcharge on top of it, the Income-Related Monthly Adjustment Amount, better known as IRMAA.
IRMAA runs on a two-year lookback, so the income you generate this year sets your premiums two years from now. Sell a large position, spike your MAGI, and you can push yourself and your spouse into a higher IRMAA tier, with a surcharge that lands on each of you, every month, for a full year. A single large sale can cost thousands in surcharges that have nothing to do with the tax on the gain itself.
The strategy that sidesteps this is simple to state. Borrow against the portfolio instead of selling it.
Why a loan does not touch your IRMAA
A loan is not income. When you borrow against your investments, the cash you receive is not a taxable event, it does not appear on your tax return as income, and it does not add a dollar to your MAGI. You keep your holdings, you keep their growth potential, you keep their dividends, and you keep your Medicare premiums where they are. You have raised liquidity without realizing a gain.
The approach we favor for this is a margin loan.
The approach we favor: a margin loan
A margin loan is borrowing against the marginable securities in your brokerage account. It is governed by Federal Reserve Regulation T, which caps the initial loan at fifty percent of the value of those securities. The proceeds can be used to buy more investments, but they do not have to be. You can draw the cash and use it for a tax bill, a purchase, or any other purpose.
We favor margin for our clients because it is the simpler and often the cheaper route. It is frequently already available inside the account, so there is no separate application and the cash can be accessed quickly. The rate is typically the firm’s base rate plus or minus a spread, and larger balances usually get better pricing. Just as important, margin leaves the key decision in your hands rather than a lender’s: how, and whether, to hedge the downside, which we will come to in a moment.
Here is a concrete example. Say you have a two million dollar taxable portfolio and you need three hundred thousand dollars. Selling three hundred thousand of appreciated stock might add two hundred thousand of gains to your income, enough to push a couple into a higher IRMAA tier two years out. Borrowing the same three hundred thousand on margin sits well under the fifty percent cap on a two million dollar account, raises the cash you need, and leaves your MAGI untouched.
What about an SBLOC?
You may also hear about a securities-backed line of credit, or SBLOC, a non-purpose loan offered through a bank affiliate where you pledge your securities as collateral. It is heavily marketed, so it is worth knowing what it is, but it is not the route we generally use. An SBLOC’s advance rate can run higher than margin’s fifty percent cap, but that comes at a price: part of what you pay for is the lender’s own conservatism and risk controls baked into the structure, which is one reason an SBLOC often costs more than a comparable margin loan. It also gives you less control and bundles in the lender’s terms rather than letting you shape your own protection. For most of our clients, a margin loan with a hedge we design together is the cleaner, lower-cost choice.
The risk to manage, and how we manage it
Borrowing against your portfolio carries one serious risk. Your collateral is your portfolio, and your portfolio moves every day. If the market falls far enough, the value of your pledged assets can drop below the firm’s maintenance requirement. That triggers a maintenance call, also called a margin call, and you are given a short window to deposit cash or additional securities. If you cannot, the firm can sell your holdings to cover the loan.
That is the worst outcome of all, because a forced sale in a down market can lock in losses and realize the very capital gain, and the very IRMAA spike, you were trying to avoid. Regulators including the SEC and FINRA have warned that market volatility magnifies these losses and that borrowers can be forced to sell at the worst possible time.
This is where margin’s flexibility becomes a real advantage, because you can hedge the collateral yourself.
Hedging the downside with a protective put
A protective put is insurance on your portfolio’s value. You buy a put option, often on a broad-market proxy such as the S&P 500 if your holdings resemble the index, struck somewhere around five to ten percent below current value. If the market falls hard, the put gains value and offsets part of the decline, which helps keep your collateral above the maintenance line and lowers the odds of a forced sale.
Buying a longer-dated put, one with a one or two year expiration, keeps that floor in place across the life of the borrowing instead of forcing you to re-buy protection every few months.
The put has a cost, the premium, and that cost is a real drag on the strategy. There are a few ways to handle it, and this is where margin shines because the structure is yours to customize:
Buy the put alone. You keep all of your upside and pay full price for the protection. Simplest, and the most expensive.
Build a collar. You buy the put for downside protection and sell a call, perhaps ten to twenty percent above current value, to bring in premium that offsets the put’s cost. The tradeoff is that the call caps your upside if the market runs past that level. For a client borrowing against the portfolio for a defined period, giving up some far-upside in exchange for cheaper protection is often a sensible trade.
A few honest caveats belong here. Hedging with an index proxy is not a perfect match for a portfolio of individual holdings, so there is some basis risk if your portfolio and the index diverge. A collar caps your gains. And options carry their own risks and are not right for everyone. The point is not that every borrower needs a hedge. The point is that margin borrowing lets you decide, and lets us build the protection around your actual situation.
Where a fiduciary comes in
Borrowing against your portfolio is not a single decision. It is several: whether to borrow at all, which route fits, what rate and advance rate you are accepting, whether a hedge is warranted, and how all of it coordinates with your tax picture and your CPA. Each piece affects the others, and the wrong combination can cost more than the sale you were trying to avoid.
As a fiduciary at Treveri Capital, our job is to weigh those pieces in your interest, to be clear about how we are compensated, and to tell you plainly when borrowing is not the right move. Sometimes the answer is to borrow and hedge. Sometimes it is to sell a smaller amount and accept the tax. The right call depends on your numbers, not on a product.
If you are facing a large cash need and you would rather not sell into a tax bill and an IRMAA surcharge, that is exactly the kind of decision we help clients work through. We would be glad to walk through your situation and show you the options side by side.
Jeff Martinez, CRPC, is a fiduciary financial advisor at Treveri Capital, focused on retirement income and Medicare planning for high-income households. Reach us at jeff@trevericapital.com or 213-537-8971, or visit trevericapital.com.
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