How Schwab’s Pledged Asset Line Lets You Access Cash Tax-Free
What if you could tap $100,000, $500,000, or even $1 million in cash — without selling a single share of your investments, triggering capital gains taxes, or touching your home equity?
Schwab’s Pledged Asset Line offers exactly that. It’s one of the most underutilized tools in high-net-worth planning, and when used strategically, it can bridge short-term needs without derailing long-term goals.
👉 How would it feel to know exactly when you can retire and how much you can spend without running out of money? Let’s talk. In a complimentary call, I’ll walk you through your numbers and show you strategies that could help you retire with more confidence and less stress. Schedule Your Call.
This guide explains how a Pledged Asset Line works, why clients use it, and how to use it smartly.
1. Pledged Asset Line Basics
A Pledged Asset Line is a non-purpose line of credit secured by a taxable brokerage account. Think of it like a HELOC, but instead of tapping home equity, you’re pledging your investment portfolio.
Key facts:
- No asset liquidation required
- No closing costs, annual fees, or prepayment penalties
- Credit limit: up to ~70% of invested assets, or up to 96% for Treasuries/cash
- Minimum line: $100,000 (requires ~$145K in investments or ~$105K in Treasuries)
- Can be secured by individual, joint, trust, LLC, or partnership accounts
- IRAs and 401(k)s are not eligible as collateral
2. Why Clients Use a Pledged Asset Line
Clients often choose a Pledged Asset Line when they want to:
- Avoid capital gains taxes from selling investments
- Access cash quickly (funds in 1–2 business days)
- Stay fully invested while covering near-term needs
- Common uses:
- Real estate down payments
- Large tax bills
- Tuition payments
- Business expenses or bridge loans
3. How Rates Work
Pledged Asset Line rates are tied to the SOFR benchmark plus a fixed spread, minus any applicable discounts.
What is SOFR?
Imagine your friend wants to borrow your bike for a day, and you agree — but only if they give you something small in return, like a cookie. That “cookie” is the cost of borrowing. In the grown-up financial world, banks borrow money from each other overnight, and they pay a small amount for that privilege. The Secured Overnight Financing Rate (SOFR) is the average “cookie cost” banks charge each other for super-short loans. It moves up or down depending on interest rates set by the Federal Reserve.
SOFR as of August 13, 2025: 4.36% Here is a link for most recent
Schwab discount tiers:
0.25% off: $250K–$750K AUM
0.50% off: $750K–$4.5M
0.75% off: $4.5M–$9M
1.00% off: $9M+
Example:
$1.5M in assets → $1M line → Current rate might be 4.36% (SOFR) + 2.4% spread = 6.76% (minus any applicable discount).
Interest cost example:
Loan balance: $500,000
Rate: 6.76% assumed
Daily interest: $500,000 × 6.76% ÷ 365 = $92.60/day
Monthly interest-only: ~$2,778
Tip: You’re only charged interest on the amount borrowed — an unused Pledged Asset Line has no cost.
4. Risks & Borrowing Limits
Like any credit line, a Pledged Asset Line has risks — the main one is a margin call.
A margin call could happen if:
You borrow up to your limit, and
Your portfolio value drops significantly
Example 1 — Borrowing to the Limit (Higher Risk):
You have $500,000 in investments and qualify for a $350,000 Pledged Asset Line (about 70% of your portfolio). You borrow the full $350,000 for a real estate purchase. A few months later, the market drops 20%, and your portfolio falls to $400,000. At 70% of $400,000, your maximum line is now $280,000 — but you still owe $350,000. Schwab issues a margin call, and you have 3–5 business days to deposit $70,000 in cash or securities.
Example 2 — Conservative Borrowing (Lower Risk):
You have the same $500,000 portfolio and the same $350,000 credit line available, but you only borrow $50,000 — about 10% of your portfolio value — to cover a short-term tax bill. If the market drops 20% and your portfolio falls to $400,000, your new 70% limit is $280,000. Since your $50,000 balance is well below that, you’re nowhere near a margin call. This is how most clients use a Pledged Asset Line — taking a small draw relative to their total portfolio to keep flexibility and reduce stress during market volatility.
Think of your credit limit like a speed limit — you can go that fast, but you’ll usually have a smoother, safer ride if you stay well below it.
5. Repayment Strategies
There’s no set repayment schedule — Pledged Asset Lines are interest-only by default. But most clients choose one of these approaches:
1. Sweep Gains (Soft Payback)
Let portfolio growth cover repayments gradually
Example: $200K portfolio grows 10% = $20K gain → can pay down most of a $25K draw
Caveat: Gains aren’t guaranteed
2. Scheduled Paydowns (Fixed Plan)
Treat it like a term loan — you commit to paying a set amount each month toward principal plus interest
Example: You borrow $25,000 and want to repay it over 24 months.
Principal portion: $25,000 ÷ 24 ≈ $1,042/month
Interest portion: If your rate is 6.76%, the first month’s interest is about $141 ($25,000 × 6.76% ÷ 12).
First payment: Roughly $1,183 ($1,042 principal + $141 interest).
As your balance drops, the interest portion decreases each month, so later payments would be closer to $1,050.
This approach works well for clients who like structure and want a clear payoff date.
3. Lump-Sum Payoff
Use a bonus, RSU vesting, or business sale proceeds to clear the balance
Ideal for those with irregular but large income events
Paying it off in one year instead of two would save you roughly half the interest cost — in the $800–$1,000 range on a $25,000 balance at 6.76%
6. Pledged Asset Line vs. Margin Loan
When people talk about “borrowing against investments,” they often use the word margin loosely. In reality, there are two very different ways to do it — a traditional margin loan and a Pledged Asset Line (also called a securities-backed line of credit).
A Pledged Asset Line aka securities-backed line of credit is designed for non-investment purposes, such as buying real estate, funding a business, paying tuition, or covering a tax bill. It’s set up more like a flexible line of credit with a minimum size (typically around $100,000) and is secured by your taxable investment portfolio. You pay interest only on the amount you borrow, and repayment terms are flexible. Because it’s not used to buy more securities, the risk of a margin call is generally lower than with traditional margin.
A margin loan, on the other hand, is most often used by traders or active investors to purchase additional securities. This type of borrowing tends to be smaller in size, doesn’t require a minimum line amount, and is far more sensitive to market swings. If the value of your portfolio drops, you could face a margin call and be forced to sell investments quickly to repay the loan.
Both a Pledged Asset Line and a margin loan use your portfolio as collateral, but they serve different purposes and carry different levels of risk. Understanding which one someone means when they say “margin” is important — especially since the same term can refer to two very different strategies.
7. FAQs
Can I use a Pledged Asset Line to buy stocks?
No — a Pledged Asset Line is for non-investment purposes only.
Will it affect my credit score?
No — Schwab uses a soft pull, not reported to credit bureaus.
How fast can I get funds?
Typically 1–2 business days via transfer, wire, or check.
Is it the same as margin?
No — see explanation above.
How do clients access funds?
- You can draw from a Pledged Asset Line in several ways:
- Online transfer to checking or savings
- Wire to a closing agent, title company, or external account
- Checkbook available by request
When is payment due?
Payments are due monthly on the 15th. By default, they are interest-only, but you can choose to pay principal as well.
Is a Pledged Asset Line technically a form of margin?
Yes. Under securities regulations, a Pledged Asset Line is a type of margin loan because it’s borrowing against the value of your investments. However, it’s structured and used very differently from the “margin” most people think of. A traditional margin loan is usually for buying more securities, increasing your market exposure and risk. A Pledged Asset Line, by contrast, is set up as a separate line of credit for non-investment purposes — like real estate purchases, tuition, or covering tax bills — and the proceeds cannot be used to buy more securities. That’s why most firms and advisors treat it as its own category of lending.
Final Thoughts
A Schwab Pledged Asset Line can unlock significant liquidity while keeping your investment plan intact. The key is using it strategically — borrowing below your limit, matching repayment to your cash flow, and always having a clear exit plan.
👉 How would it feel to know exactly when you can retire and how much you can spend without running out of money? Kind of crazy that you just found this blog… and your next step might be booking a complimentary call. In that call, we’ll explore your numbers and see what’s truly possible for you. Schedule Your Call.
Sources:
https://www.schwab.com/pledged-asset-line
https://paperfree.com/en/magazine/pledged-asset-line
https://www.kubera.com/blog/pledged-asset-lines
https://www.schwab.com/learn/story/is-securities-based-line-of-credit-right-for-you