Pay down your student loans without sacrificing your retirement wealth

Be sure to take into account the kinds of tax advantages you may get from investing.

If you have a company retirement plan or an individual retirement account, you will get a tax break either when the money goes in or out, depending on what kind of account you own, Benz said.

Traditional 401(k) plans and individual retirement accounts take pre-tax money. Roth 401(k) plans and IRAs let you put in post-tax money, which then may be used for tax-free income in retirement.

If you’re a lower income saver, you may be eligible for a saver’s credit on your IRA or 401(k) contributions. The amount of that credit varies based on your adjusted gross income, and counts towards contributions of up to $2,000 for individuals and $4,000 if you are married and filing jointly.

“There’s a good case for taking advantage of that, even if you have high interest rate debt,” Benz said.

At the same time, you want to mind the potential tax deductions you may receive for your student loan debts.

You can deduct up to $2,500 of interest paid toward student loans in one year. But high-income individuals may not qualify, Benz noted.

“If you’re above the threshold for deductibility, that would tend to put the advantage on pay down,” Benz said.

As new tax rules go into effect this tax year, many more people will generally claim a standard deduction rather than itemizing their deductions.

The good news for borrowers is that student loan debt is not one of those itemized deductions, Benz said.

“Even if you’re not an itemizer, you can take advantage of the student loan deduction, assuming your income is below the threshold,” Benz said.

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