7 hidden sources of free money that most people forget to claim

The odds of winning the lottery are 1 in hundreds of millions. So what’s the smartest bet for “free money”? You can take advantage of your employer benefits, make the most of credit card rewards, and claim available tax credits. Here are some ways to get some extra money without having to rely on luck.

1. Increase your Health Savings Account (HSA)

If you have a high-deductible health insurance plan, you can pair it with a health savings account (HSA), which uses pre-tax dollars through payroll deductions, reducing your tax liability.

Your money grows tax-free, and you can make tax-free withdrawals for qualified medical expenses such as medical equipment, co-payments, and qualified services. The maximum amount you can contribute is set by the Internal Revenue Service (IRS) and is adjusted annually for inflation.

Some of the benefits of having an HSA include:

• Your employer can also contribute to your HSA.
• You can invest the money in your HSA account in assets like stocks, bonds, etc., the same way you would with a retirement account.
• Investing annually in an HSA allows you to benefit from compound growth.
• Any unused funds can be rolled over to next year.
• If you change jobs or health plans, you can take your HSA with you to your new employer.

HSAs can be a valuable tool for retirement planning, so use the account only when necessary.

2. Use your Flexible Spending Account (FSA) before it expires

A flexible spending account (FSA) is an employer-sponsored benefit that allows you to save pre-tax dollars from your paycheck for qualified health care and dependent care expenses. These include out-of-pocket costs such as deductibles, copayments, coinsurance, and some medications. Your employer may also contribute to your plan.

Since the FSA uses pre-tax dollars, it reduces your taxable income. The money you put into your FSA is not subject to income taxes. You can make tax-free withdrawals from your FSA as long as they are for qualified medical expenses as outlined by the IRS.

There are certain rules you need to know about FSAs:

• You cannot use an FSA with a marketplace health insurance plan. (You can use an HSA with a Marketplace plan, though.)
• The IRS sets and adjusts FSA limits annually for inflation. Some employers can set minimums for their own plans. Married couples can contribute to their own plans to meet the joint family limit.

In most cases, you must use the funds in your FSA within one year. Any remaining cash cannot be carried over to the following year.

3. Don’t miss your 401(k) match.

A traditional 401(k) (not a Roth) allows you to save pre-tax money from your paycheck using payroll deductions. This reduces your taxable income and your tax bill. (A Roth account works differently: You pay taxes up front, in the year you make the contribution, so you can withdraw the money tax-free in retirement, as long as you’re 59 or older.)

The IRS limits the amount you can save in a 401(k) each year, adjusted annually for inflation. If you’re 50 or older, you’re allowed a catch-up contribution, which gives you extra money toward your nest egg.

Your company may provide an employer match. This means that if you contribute a percentage of your salary to your retirement plan, your company will also contribute a percentage of your salary, up to a certain amount.

For example, your company might offer a 100% match for the first 3% of your salary. So, if you earn $50,000 and contribute 3% of your salary to your 401(k), your employer will also contribute 3% ($1,500). Note that matching contributions have a cap, so if you contribute more than 3%, your company will still contribute 3%. If you contribute 2%, your company will contribute 2%, and so on.

Consider any employer match when deciding how much to contribute to your retirement plan. A solid goal is to contribute at least 15% of your salary to your 401(k) each year. So, if your employer contributes 3%, you must contribute at least 12%. Using the example above, your 12% annual contribution would net $6,000 on a salary of $50,000, giving you a total of $7,500 with the employer match.

4. Evaluate Your Employee Stock Purchase Plan (ESPP)

Consider taking advantage of an employee stock purchase plan (ESPP) if your employer offers one. An ESPP allows you to buy your company’s stock at a discount. Here’s how it works:

1. Determine the amount you want to deduct from your salary.
2. The company deducts after-tax dollars from your paycheck through payroll deductions.
3. The stock is purchased on the date of purchase, typically at a discount of 5% to 15% from the market price, depending on the type of plan.

Some companies require you to work for at least a year to be eligible.

Plans often come with what’s called a takeback feature. This can get you a better deal.

Make sure you diversify your holdings and don’t put all your eggs in one basket. And be sure to review the holding periods and tax treatments for ESPPs before disposing of any stock to avoid any income tax shock.

5. Check for hidden workplace privileges

Employers often offer perks as incentives to their employees. Look for the following:

• Educational benefits: Some companies offer tuition reimbursement, scholarships, and stipends. You can use it to fund and enhance your professional development.
• Commuter benefits: Your company may give you money to cover the cost of public transportation, parking, or ride-sharing services.
• Health and wellness benefits: Use it to cover things like meal allowances and gym memberships.

You may need to enroll and reapply for these benefits each year. Benefits like these can save you a lot of money and lower your cost of living.

6. Claim the tax credits you qualify for

Tax breaks can be a blessing at the end of the tax year. They are often more valuable than tax deductions because they directly reduce the amount of tax you owe. Some of the most common (and most overlooked) tax breaks are:

• Earned Income Tax Credit: You can reduce your tax liability and potentially increase your tax refund if you have a low or moderate income.
• Savings credit: This tax credit motivates you to save for retirement as long as you meet certain requirements.
• Child tax credit: You can reduce your federal tax liability if you have one or more qualifying children by claiming this credit.
• Child and Dependent Care Credit: You can claim a tax break if you pay to care for a qualifying child or other individual so you or your spouse can work or look for work.
• Home energy tax credits: You can claim tax credits for certain qualifying improvements you make to the home.
• Educational tax credits: You can reduce the amount of tax you owe by claiming an education credit, such as the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC), as long as you qualify.

Keep in mind that this is not an exhaustive list, and your eligibility may depend on your income level and tax filing status.

7. Make the most of your rewards credit cards

A rewards credit card offers certain perks when you make purchases. Many cards offer you a percentage of your spending as cash back. For example, some cards offer a flat percentage on all purchases, while others divide cash back through tiered categories, such as 3% on groceries, 2% on food, and 1% on all other purchases.

If you’re a new cardholder, you may be eligible for a sign-up bonus if you meet the introductory offer. Card issuers often offer additional rewards if you spend a certain amount within a specific period on the card.

Cash back cards only make sense if you pay your balance in full. If you don’t, the interest charged on the card negates any cash back you earn. Keep in mind that some card issuers may limit the amount you can earn, especially in tiered or special categories.

Bottom line

Using workplace benefits, tax breaks, and cash back credit cards can put money back in your pocket. You can try turning to the options above — from health accounts to stock incentives, workplace perks to tax credits — for extra money. Just do your due diligence and make sure you meet the eligibility requirements.