I am a recent college graduate with student loans and a job which puts me at the top of the 15% tax bracket. I'm not sure how my career will grow at this point, but I was thinking it's possible I'll stay in the 15% bracket my whole life, especially if I get married.
I've done some research and decided to repay some of my student loans ( at least the 7.9% and 6.55% ones ) before investing past my company 401k match.
Here's the situation I'm wondering about: Say my forecasted taxable income (line 43) is $37,900 for the year, and I plan on paying $3K additional to student loans. $1K of that is in the 25% tax bracket, so I'd pay an addition $100 in taxes on it. Or I could have put the $1k into my 401K, withdrawn it in retirement at 15%, and only paid $2K on the loan.
I tried some online calculators which suggested that the additional loan payment would far outweigh the tax cost. Is this always the case? Is there any combination of interest rate, loan balance, and additional payment amount that would make it a bad idea?
The simplest example I could think of is a loan at 0%, it wouldn't be worth paying more in taxes to pay it off early since it doesn't cost you anything. Since it works at 0, I figure it would also work at 0.1% .... but probably not at 25%. I'm just not sure how to math it out.