Make 2025 The Year to Maximize Your Deductions

It’s a new year, which means it’s a new tax year, giving you another chance to start saving money! If you have federal student loans, saving money on your taxes also helps you save money on your student loans. Unfortunately, most of us don’t start thinking about our taxes until the end of the year, or we wait until we’re paying last year’s taxes, when we should be thinking about saving on this year’s taxes. The problem is that you can’t save money on last year’s taxes—it’s too late—if you want to save, you need to think ahead. That’s why now is the time to start thinking about your deductions for 2025!

Pre-Tax Deductions + Student Loans = Triple Savings

Everyone wants to save money, and pre-tax deductions are one of the easiest ways to save on your taxes: your employer will automatically deduct them from each paycheck with no additional effort required. For federal student loan borrowers with an IDR plan, last year’s tax filings are used to determine your monthly student loan payment. Whatever you can do to lower your adjusted gross income (AGI) will then lower your loan payment. That means your pre-tax deductions save you money three times: no taxes on the deducted income, lowering the amount of income you’re taxed on (AGI), and lowering your monthly student loan payment on IDR. 

Pre-Tax Deductions Come in Many Flavors

There are many different kinds of pre-tax deductions out there with a variety of benefits. All can help you lower your AGI and—thus—your tax liability. These fall into the category of “voluntary” deductions, which means you have to opt in to them—unlike your income and social security taxes—but there is also a limit on how much you’re allowed to deduct. Examples of pre-tax deductions include:

• 401(k) or 403(b) retirement accounts. Income is deducted from your paycheck, put into these tax-privileged accounts, and you only pay taxes on them when they’re withdrawn. They’re considered “double-tax-free.”
• HSAs and FSAs. When used for medical expenses, these accounts are never taxed, which makes them “triple-tax-free.” HSAs carry their balances from year-to-year, but FSA funds are forfeited at the end of the year. That means you can build up an HSA over time and—after you turn 65—use them for anything without paying a penalty, thus making them double-tax-free even if not used for medical expenses. 
• 529 College Savings plans. These plans function similarly to HSAs: you can make pre-tax deductions to tax-privileged accounts, and they remain tax-free as long as they’re used for education expenses. Like HSAs, too, you can withdraw them for non-education expenses as well, but you pay a penalty in addition to the deferred tax. Unlike HSAs, however, there is no age at which the penalty goes away.

Navigate is not a tax agency, and we are not certified to give tax advice. We are, however, experts in student loan management; we know that one of the easiest ways to minimize your student payments is to make the most of your tax savings. Since your taxes are the primary way the government certifies your income every year, lowering your AGI through pre-tax deductions is pretty much a guaranteed way to reduce your student loan payments. It’s too late to save on your taxes for 2024, but you’re ready to start saving for every year ahead!

If you’re looking for the best way to save on your student loans, give us a call. We’ve helped physicians save millions on their student loans and can’t wait to help you find your path to savings.