Spotlight on Student Loans:

Wrap Up Your Tax Year with a Student Loan Bonus

Wrap Up Your Tax Year with a Student Loan Bonus

Saving Money through Smart Tax Strategy

With the December holidays upon us, the 2021 tax year is drawing to a close, which leaves us just enough time to maximize our savings and how it impacts your student loans. For those in higher tax brackets, maximizing deductions has long been an important component of wealth-building. By contributing to things like your retirement, a child’s education fund, or privileged accounts like a health savings, your savings are two-fold: the money that’s set aside goes untaxed, and it lowers your AGI (Adjusted Gross Income), which reduces your bill to Uncle Sam.

Three-fold Tax Savings with Student Loans

If you don’t have kids, or are a long way off from retirement, you may not be prioritizing pre-tax contributions, preferring to pocket your whole paycheck and dealing with the tax hit later. You may change your mind, however, when you consider that lowering your tax bill can also lower your monthly student loan payment.

For those on income-driven repayment plans (IDRs), your student loan payments are recalculated each year based on how much money you made the year before. This is typically done using your AGI, taken directly from last year’s 1040—you can even link your tax documents directly from the IRS when you submit your income recertification. By reducing your AGI through pre-tax contributions, you save the tax on the deferred income, your annual tax bill, and on your monthly student loan payment. Between the three, that can add up to significant savings!

Ask the Experts

For many of us, tax strategy isn’t what gets us out of bed in the morning, but our student loans may be what keeps us up at night. We don’t usually really see the benefit of pre-tax contributions—after all, tax time only rolls around once a year—but we see our student loan bills every month.

If AGIs, 401(k)s, and HSAs aren’t your thing, give your tax professional a call. But, before you do, check in with Navigate—we can help you save money long after tax day, and we’re just a click away.

If you’re pursuing Public Service Loan Forgiveness and you haven’t met with us yet, schedule your free 15-minute Discovery Session to find out if you qualify for PSLF. Or what you can do if you don’t.