Buy, Borrow, Die is a method the rich use to reduce their taxes while generating wealth over time by holding it in investments. The general idea is simple: buy some stocks or other investments, borrow against that to get a loan, use that loan to live your lifestyle while avoiding paying any capital gains taxes, die and let your beneficiaries get a “step up in cost basis” meaning they don’t pay any taxes on any capital gains.

Nothing about this strategy is illegal and you can likely save a lot over money by not paying capital gains, or none at all. If a strategy of Tax-Loss Harvesting is used you can likely reduce taxes or get a refund.

This document covers the way an individual, but also a business, can use this method to reduce taxes and use debt to increase returns using Interactive Brokers. The reason for Interactive Brokers is their low margin rates which fall below the rate of inflation, and their programmatic access which allows for automating a lot of the strategy.

Margin Loans

Margin, or margin loan, is a type of loan where you use your stocks in a brokerage account as collateral to get a loan. This loan is usually used to buy additional stocks using leverage. To brokerages these loans are great because they can assess the risks of the different stocks that you own and use those stocks as collateral. So it really doesn’t cost them anything to provide these loans since they can just sell them if they think you are overleveraged. 

Assumptions & Pitfalls

With the Buy, Borrow, Die strategy there is a lot of assumptions that I make which may not hold true and are reflection of history as opposed to stated axioms:

  • Cash loses value
  • An S&P500 Index fund return on average 8% a year
  • Step up in Cost Basis to transfer wealth to your beneficiaries while avoiding taxes will not meaningfully change.

Cash Loses Value

The first assumption is that cash loses value. The Fed works to have an inflation rate of 2-4% percent meaning a dollar today is worth $0.98-0.96 in a year. Cash then, while useful to pay for things in the immediate term,is deflationary. Having a lot of cash on hand results in that cash being worth less in the future than right now.

S&P Index Funds Return 8% on Average

The corollary to cash loses value is that the S&P over a large time horizon results in 8% a year. This means a dollar invested today is worth $1.08 in a year. But the second year is worth $1.16 etc. because of compounding. Further, with dividends, you can get additional cash into your account without really doing anything.

Setup up in Cost Basis

As of writing this, there are some laws trying to get passed to remove the Step-up in Cost Basis but there has been major pushback. The Step-up in Cost Basis is when you die your beneficiaries start the clock of capital gains from the prices of when they inherited your investments.

For example, say you have VTI at $100 you let it grow for 40 years and it is $200. You die. You beneficiaries do not need to pay the capital gains on the $100 gain. They will start the clock on their capital gains at a $200 so their realized gains are $0. They can then sell the assets at the $0 realized gains to pay for your lifestyle, and continue the cycle.

Leveraging 25%

Further, the assumption of this also is that you are leveraged a max of 25% over your total assets. Leveraging is useful but also risky. If you are over-leveraged with the margin loans you can get a  margin call leading you to be liquidated at the worst possible time. By only leveraging 25% over your total assets the assumption is that you will be able to withstand a multiyear downturn in the market.

Even on Black Monday + Black Tuesday in 1929 the market fell a total of 24.5% so even with that fall you should have a buffer in the margin.

Interest Rates Will Remain Low

The general trend of the 2010s has been that interest rates have remained low. The continued assumption is that these rates will continue to remain low for the foreseeable future. This may be an incorrect assumption but for the time being the cost of gaining a margin loan is relatively cheap.

IBKR it is 1.59% APY to start and goes lower the more money you have in their account. As long as the margin loan rate is below the average rate of return of the S&P 500 this strategy will work.


The assumptions have some risks. I am expecting the past to reflect in the future. This may not hold true at all. Some of the risks that I see:

  • The political climate may change the tax benefits associated with the wealthy which may result in some of these methods not working.
  • Climate Change kills us all
  • The demographic decline in the US and in general the world will result in the breaking of capitalism as an ideology, leading to a decline in return of investment. Think Japan.

But from an American perspective, these will likely not change much or may not matter for people below a certain wealth threshold.


The reason to use this method is so you can get the cash you need without gatekeepers. You don’t need banks, loan officers, and other bureaucrats to borrow money. 


Before we get into how to setup the Buy, Borrow, Die strategy with IBKR I wanted to go through a set of scenarios that attempt to underscore why this strategy works.

ExistingBuy, Borrow, Die
IncomeStore it in a Bank AccountImmediately Invest into Brokerage and buy into the Stock Market
BillsPay Credit Cards and Bills via Cash in Bank or High interest credit cards.Borrow against the Margin loan of IBKR or their debt card. Use that money to pay bills.
LoansGo to a bank, get a loan or have them reject you.Borrow against the Margin loan of IBKR.


If you are a W-2 employee this may not make much difference since your taxes are automatically paid by your employer. However, if you are self-employed you have to pay your estimated taxes four times a year. You need to hold enough cash to make these payments. If you are a business you still need to make these payments and god help you if you make a business investment and are short of cash that quarter.

With a traditional setup enough cash has to be put aside to pay for these tax payments resulting in excess cash in the bank account which is not being deployed. While it is good to have cash to pay the IRS on hand it would also be good to not just have cash sitting around. 

If you have an LLC the assets of the LLC are under liability if you get sued. So having a bunch of cash sitting in the LLC is not a good idea and money should be put back into the LLC when needed.

With Buy, Borrow, Die you can withdraw all excess cash and put it into investments in your IBKR account. When you need cash you can borrow against these investments and put it into your account to pay for taxes.

Buying a House

Say you have saved a bunch of money for a house by investing in the stock market. You want to buy a house and want to use some of the assets for a down payment. You have a problem in that if you sell your investments and they have grown you will have to pay capital gains. Also, you lose the benefit of those investments continuing to grow. So with the existing method:

  1. You pay taxes on capital gains when you sell
  2. Your investments don’t keep growing
  3. You moved all that money into a single asset, the house, as opposed to being diversified: house + investments.

With Buy, Borrow, Die you can borrow some or all of the down payment needed for a mortgage. You can continue holding your investments so you don’t incur a capital gains tax. You can pay off the down payment at your leisure as long as you maintain you margin requirements.

Alternative to Business Loans / Investments

Business loans are a pain to get. Banks want a solid history before they give you money to start the business and they want to go through everything before giving you it. Business investments are also onerous since it means giving up control to get additional cash. If the goal is to reduce risk then having someone else foot the bill is probably not a bad idea even if it means losing control.

However, if you want to maintain control of your company and grow it, it may make sense to instead infuse your company with a margin loan that you can then use to grow your business. This would be a faster way of getting the necessary cash at a much lower rate than getting a business loan which goes for 3-6%.

Credit vs Margin

A credit card can be thought of as a free 30 day loan with crushing interest after that 30 day period. But there are benefits to credit including rewards, points, etc. that can be used to offset future purchases.

The only change that needs to be made is to continue paying with your credit card but use the bill pay feature of IBKR to pay your credit card using your margin loans. This way you continue getting rewards and if you need to carry a balance you are paying with a margin loan as opposed to the steep credit card interest rates.


The beauty of the Buy, Borrow, Die is that since you are borrowing against your investments you are not gaining income so you can avoid income tax. Since you are not selling your investments you are not paying capital gains taxes. Furthermore, if we use a tax loss harvesting strategy where we avoid the IRS wash sale rule we can actually get money back from the IRS.

Reasons to reduce taxes:

  • FAFSA loans can be gained if taxes can be reduced. If you have less income or reportable taxes you can use that to gain more student loans.
  • Enter a lower tax bracket. With the money that the government is throwing out these days it may be better to enter a lower tax bracket to get more of that free money.


The entire setup I have uses Interactive Brokers (IBKR) for a version of Buy, Borrow, Die. The reason for this is simple: the margin rate is so low that it really doesn’t make sense to be at any other brokerage as they charge multiples of IBKR which prevents this setup from working.

The setup is:

  1. Get a IBKR Pro Margin Account. This leads to the 1.59% margin rate to start and goes down from there as a step function. There are additional fees that you will need to pay such as commissions, data fees. You can avoid paying the data fees if youare not timing the market. The commissions can be reduced by moving to a Tiered rate as opposed to a Fixed rate.
    1. Add a beneficiary. This takes care of the die part of Buy, Borrow, Die.
    2. Get their Debt Card
    3. Setup Bill Pay and pay your credit cards and other bills.
  2. Every dollar you make is immediately transferred to IBKR.
    1. Buy VTI, SCHH or other index funds with low expense ratios. Trade other stocks if you feel adventurous but IBKR and other brokers give you margin based on the risk of the stocks you own. Less risky = more margin.
  3. Borrow money when you need. Yes, you can withdraw the margin amount from your account and transfer it to your bank account. IBKR does charge to withdraw per month after the first withdrawal, so be strategic about reducing the cost of this. This image from Mr. Money Moustache:
  4. Strictly stay below the 25% leverage line.Do not go over this threshold as you may be putting yourself af risk if the market significantly goes down. 
  5. Enjoy life. There is more to it than money.
  6. Die and have your beneficiaries start this process again.


Be advised that investments may go up as well as down for any reason, and past performance of a stock is no guarantee of future performance.

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