Borrow against portfolio to pay for medical school

[zorcandpals]

Hello,

I was recently accepted to a medical school and am in the incredibly privileged position of having a 529 account with money saved from going to a cheap school for undergrad. This should cover most of my expected medical school cost but I will probably need to find 100k outside of this account. I have a taxable account from which I could probably borrow most if not all of this amount. These rates would be significantly lower than taking out student loans. I am already beginning to rotate some holdings to more conservative positions since I know I will be needing the money in the next few years.

However, my main question is, should I just sell the assets when I need the money or should I borrow against these assets? I would only borrow up to a third to a half of my margin amount to reduce the risk of being forced to sell in a crash.

---

Members don't see this ad.

 

[Monocles]

Nice and congrats.

Borrowing to the limit of your margin seems to make sense. Hopefully someone with more technical knowledge can chime in but aren't there tax advantages to borrowing against your own assets to spend anyway? (Aka how the ultra rich avoid taxes etc?)

 

[zorcandpals]

So that is essentially it.

Up to the first 42k ish is actually tax free capital gains and over that is 15%. So I would only need to pay tax on roughly 20k,

20000*.15 = 3k

20000*.02 = 400 interest per year

My back of the envelope calculation probably indicates that its not really worth the cost of my time/stress to do it.


For ultra wealthy it makes more sense though since if you spend 500k a year as a married couple you pay 65k a year in capital gains taxes. If you have a 100 mil portfolio you can probably find a margin loan for like 1.1%; call it 1.5%

500k * 0.015 = 7500 a year in interest;

But over the course of the year the market increases to 110 mil and at your burn rate even if it tanks to like 50mil you aren't really gonna see a material change in your quality of life.

Repeat over 15 years your debt is now 9.3 mil from taking out 500k every year to fund your life style and paying 2% compound interest on the portfolio loan but your portfolio is probably worth between 135-550 mil. (100 mil starting, assume 7% +/- 5% return) When you die your kids inherit the portolio at this new cost basis so when they sell to pay the 9.3 mil on your estate they dont need to pay taxes on it