Income-Driven Repayment Tax Bomb Reserve Planner

Calculate the tax bill that could accompany income-driven repayment forgiveness and schedule monthly savings so the money is ready when the IRS sends a 1099-C. Adjust yields and current reserves to see how investment choices change the path.

Estimated principal and interest that will be forgiven at the end of your IDR term.
Combine federal, state, and local rates you expect the year the balance is forgiven.
Number of years remaining before forgiveness is granted.
Average annual return you anticipate earning on the savings vehicle you will use.
Leave blank if starting from $0. Enter today's earmarked balance if you already have funds set aside.

Estimates only; consult a tax professional for personalized advice.

Examples

  • Forgiven balance $120,000, marginal tax rate 28.0%, 12.0 years remaining, reserve yield 3.0% ⇒ Reserve target: $33,600.00 | Monthly contribution: $194.14 | Interest earned: $5,644.37
  • Forgiven balance $85,000, marginal tax rate 24.0%, 9.5 years remaining, reserve yield 2.4%, existing reserve $5,000 ⇒ Reserve target: $20,400.00 | Monthly contribution: $121.41 | Interest earned: $3,398.22

FAQ

What happens if tax rules change before forgiveness?

Run new scenarios annually. If federal or state governments extend tax waivers, set the marginal tax rate to zero to confirm whether a reserve is still necessary.

Can I include employer student loan contributions?

Yes. Reduce the projected forgiven balance by any employer contributions you expect before forgiveness so the reserve reflects the smaller taxable amount.

How should I handle existing savings invested in the market?

Use the optional existing reserve input with a conservative yield that matches how you intend to invest those funds between now and forgiveness.

Does Public Service Loan Forgiveness trigger the same tax bill?

No. PSLF is tax-free under current law. Set the marginal tax rate to zero if you qualify for PSLF so the calculator reflects that exemption.

Should I account for income-driven payment changes?

If your income or family size fluctuates, update the forgiven balance projection and the years remaining so the reserve keeps pace with changing repayment trajectories.

Additional Information

  • Monthly deposits are assumed at the end of each month with interest compounding monthly at the stated yield.
  • Existing reserves are treated as on-hand funds that begin compounding immediately at the same yield.
  • Set the marginal tax rate to zero if Congress extends the federal tax exclusion for forgiven loans beyond 2025.
  • Refresh the projection when income, family size, filing status, or state tax rates shift.

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