It’s tax season, and even if you don’t think you’ll find a “pot o’ gold” on April 15th, you can at least take steps to minimize the amount you owe to Uncle Sam. Fortunately enough, there’s no luck involved; you just have to know where to put your money. One smart step is to create your own little pot o’ gold by maximizing pre-tax contributions.
So where can you learn about how to best utilize pre-tax contributions?
Our friends at White Coat Investor write a lot about finance, especially from an attending physician’s point-of-view. One of their favorite topics is how to save on taxes. As a recent article (20 Ways to Legally Lower Your Tax Bill) put it, “I pay every dime I owe in taxes, but I’m not going to leave a tip.” In it, their top three tax savers are pre-tax contributions that help reduce AGI.
How do pre-tax contributions lower my AGI and, thus, my tax liability?
Adjusted Gross Income is the amount of money you made last year that deserves to be taxed (according to the government, at least). It accounts for your gross income (all the money you made) minus whatever deductions you can claim. If you are itemizing your deductions (not taking the standard deduction), those are accounted on Schedule A of your tax return. Pre-tax contributions are taken into account before those deductions, and are more favorable to your overall tax picture.
Why is maximizing my tax savings important for student loans?
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 on your return is almost a guaranteed way to reduce your student loan payments. The easiest way to lower your AGI is through pre-tax contributions.
Looking to grow your pot o’ gold? Making the most of pre-tax contributions saves you money in three ways: 1) you grow your retirement and other pre-tax accounts, 2) you save on your taxes by reducing your AGI, and 3) you reduce your monthly loan payments. It’s a win-win-win! Having a little luck o’ the Irish doesn’t hurt, but having the right tax strategy takes no luck at all.