Buy, borrow, die works beautifully — unless your money is in a 401(k).

"Buy, borrow, die" is the closest thing personal finance has to a magic trick: the wealthy keep their fortunes growing, live on borrowed money, and never pay the tax. As a description of what the very rich do, it is mostly accurate. The better question for a retiree is whether any of it carries over to ordinary retirement savings, and the answer shows which moves do work.

What is buy, borrow, die?

Three steps, short enough for a napkin:

• Buy assets that appreciate, usually stock, and don't sell them.
• Borrow against the portfolio when you need money. Borrowed money isn't income: the IRS says that when you borrow, you are not required to include the loan proceeds in income because you have an obligation to repay the lender. No sale means no capital-gains tax.
• Die. Property inherited from a decedent generally takes a basis equal to "the fair market value of the property at the date of the decedent's death" (IRC §1014). The gains you never sold disappear for tax purposes, and the loan is repaid from the estate.

ProPublica's June 2021 series, "The Secret IRS Files," described this pattern at the top of the wealth scale. Using leaked IRS data, it calculated a "true tax rate" of 3.4% for the 25 richest Americans over 2014 to 2018, and pointed to borrowing against holdings as one of the reasons. That figure is ProPublica's own comparison of taxes paid with Forbes estimates of wealth growth, not a rate in the tax code.

The last step has plenty of room, too. The IRS lists the basic exclusion amount for 2026 at $15,000,000 per person, so an estate under that size owes no federal estate tax. The 2025 budget law set that figure without a built-in expiration date, though Congress can always change it.

Why does it work for the very wealthy?

Everything above happens in an ordinary taxable account: stock you own outright, in your name, that a bank can take a lien on. The loan needs collateral a lender can actually seize, and the step-up needs assets that pass to your heirs. For a billionaire the borrowing is small next to the portfolio and the loan is never the point; the step-up at death is. That is a strategy for passing wealth on, not for turning savings into spending.

Why can't you do this with a 401(k) or IRA?

Retirement savings mostly live in these accounts: the Investment Company Institute puts IRAs at $19.9 trillion and defined contribution plans such as 401(k)s at $15.0 trillion, together about two-thirds of the $51.2 trillion in U.S. retirement assets at the end of June 2026. Four doors the strategy needs are locked in them.

You can't pledge an IRA. The IRS says it plainly: "If the owner of an IRA pledges part of the IRA as collateral, the part of the IRA that is pledged is treated as distributed." That is the statute, IRC §408(e)(4). A deemed distribution is ordinary income, and before age 59½ it is usually an early distribution carrying an extra 10% tax.

Nobody lends against a 401(k). The plan itself can lend you money, but only up to the lesser of $50,000 or the greater of $10,000 or 50% of your vested balance, repaid within 5 years. That is a short, capped loan, not a credit line. And an outside lender can't take the account as security: IRC §401(a)(13) requires that plan benefits "may not be assigned or alienated."

Every dollar out is ordinary income. No structure around a pre-tax account changes how the money is taxed when it leaves. In Runway's calculation, a couple both 65 or older with no other income who take $80,000 from a traditional IRA pay $4,844 in federal tax (6.1%). Once their ordinary income reaches $200,000, each extra $1,000 is taxed at 22%, and the 2026 top rate is 37% (see our tax brackets guide).

The step-up skips them. IRC §1014(c) says the step-up "shall not apply to property which constitutes a right to receive an item of income in respect of a decedent." The IRS treats a distribution from an inherited traditional IRA as taxable "in the year received as income in respect of a decedent." Most non-spouse heirs must empty the account by the 10th anniversary of the owner's death. The "die" step doesn't erase the tax on pre-tax money; it hands the bill to your heirs.

What about "just live off the yield"?

The usual kicker is to skip the borrowing and shift into income-producing assets. In a taxable account that means selling appreciated positions, and each sale realizes a gain. Long-term gains are taxed at 0%, 15% or 20% depending on income (IRS Topic 409), with a 3.8% net investment income tax on top for joint filers above $250,000 of modified adjusted gross income. So the top federal rate on a gain is 23.8%. Retirees with modest income often owe far less, as the next section shows.

If you do have a large brokerage account, should you borrow against it?

Take a couple who need $80,000 a year and hold $2 million in a taxable account, the strategy's home turf. The three ways to raise the money look very different.

Selling can cost nothing. Gains sit on top of other income, and the first slice is taxed at 0%. In 2026 that slice is taxable income up to $98,900 for a married couple filing jointly (IRS Revenue Procedure 2025-32). After the standard deduction, a couple with no other income can realize $131,100 of long-term gain at 0% if both are under 65, and $134,400 if both are 65 or older (our capital gains guide shows how the room shrinks as other income grows). Here is the federal tax on selling enough stock to raise $80,000, for a couple both 65 or older:

Borrowing costs interest, and the interest compounds. Interest on a single $80,000 draw at 8% is $6,400 a year for as long as the loan is outstanding. Draw $80,000 every year and add the interest to the loan, and the balance grows faster than most people expect. This illustration assumes the portfolio earns 7% every year with no downturn, the loan costs 8%, and no interest is paid in cash:

Leverage has a temper. Lenders set a ceiling on the loan as a share of the portfolio, and a market drop pushes the ratio up exactly when you can least afford to repay. In the illustration, if the portfolio fell 25% in year 10 instead of rising 7%, the loan would stand at 45% of the portfolio at the end of that year rather than 32%. It has happened in real life, though not to a retiree. In May 2012, Green Mountain Coffee Roasters' founder Robert Stiller had about 5 million shares sold from his brokerage account to meet margin calls on loans secured by his pledged stock, after the company's market value fell 47% in four days. A retiree drawing an income has no paycheck to rebuild with after a forced sale near the bottom.

Borrowing does have a modest, tactical use: a small line that lets you avoid selling in a bad year, repaid when markets recover. That is liquidity management, a bridge rather than a plan.

What works instead of buy, borrow, die?

The tools that fit ordinary retirement accounts are less exciting, and they go after the same target, lifetime tax on your savings:

• Spend from the taxable account inside the 0% and low brackets, as the tables above show, and keep an eye on the neighbors. A gain raises the income used for Medicare surcharges, ACA subsidies and how much of your Social Security is taxed (see taxable accounts in retirement).
• Leave the most appreciated positions for last. Spending first from positions with little gain, and leaving the rest to be inherited, uses the step-up that taxable accounts really do get.
• Convert pre-tax money to Roth in your low-income years. Between your last paycheck and the years when Social Security and required distributions start, taxable income is often unusually low. Paying the tax then, at a rate you choose, can beat paying it later at the rate the RMD schedule sets (see when a Roth conversion pays off and required minimum distributions).

How were these numbers computed?

The 2026 thresholds and the standard deduction ($32,200 for a joint return, plus $1,650 for each spouse 65 or older) come from IRS Revenue Procedure 2025-32. The tax figures are Runway's federal tax calculation for a married couple filing jointly: the room at the 0% rate is the largest long-term gain that produces no capital-gains tax, and the sale and IRA examples are the federal tax with and without the income in question. State tax is not included, and neither are Medicare surcharges, ACA subsidies or the 3.8% surtax, which can add cost in some cases. The loan table is plain compounding under the assumptions stated above: an 8% loan rate and a 7% return every year are illustrations, not quotes or forecasts, and Runway does not model securities-based loans. Rates, fees and the loan-to-value limit a lender will allow vary by lender and portfolio, so ask the lender for its terms.