Key Takeaways
\nEnroll in a 401(k) to capture employer matching. Use an employee stock purchase plan (ESPP) for discounted company stock.Check for valuable workplace perks like tuition assistance, commuter benefits, and wellness reimbursements.Take advantage of tax credits, which reduce what you owe at tax time.Earn rewards on everyday spending with a credit card, but always pay your balance in full.<\/p>\n
The odds of winning the lottery are 1 in hundreds of millions<\/a>. So what’s a smarter bet for getting “free money?” You can leverage your employer benefits, make the most of credit card rewards<\/a>, and claim available tax credits. Here are a few ways to snag some extra funds without having to rely on luck.\n<\/p>\n 1. Max Out Your Health Savings Account (HSA) <\/p>\n If you have a high-deductible health insurance plan<\/a>, you can pair it with a health savings account<\/a> (HSA), which uses pre-tax dollars through payroll deductions, lowering your tax liability.\n<\/p>\n Your money grows tax-free, and you can make tax-free withdrawals for qualified medical expenses like medical equipment, copays, and eligible services. The maximum amount you can contribute is set by the Internal Revenue Service<\/a> (IRS) and adjusted annually for inflation<\/a>.\n<\/p>\n Some of the benefits of holding an HSA include:\n<\/p>\n Your employer can also contribute to your HSA. HSAs can be a valuable retirement planning tool, so tap into the account only when necessary.\n<\/p>\n 2. Use Your Flexible Spending Account (FSA) Before It Expires <\/p>\n A flexible spending account<\/a> (FSA) is an employer-sponsored benefit that lets you save pre-tax dollars from your paycheck for qualified healthcare and dependent care expenses. These include out-of-pocket costs<\/a> like deductibles, copays<\/a>, coinsurance<\/a>, and certain drugs. Your employer may also contribute to your plan.\n<\/p>\n Since an FSA uses pre-tax dollars, it lowers 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.\n<\/p>\n There are certain rules you need to know about FSAs:\n<\/p>\n You can’t use an FSA with a marketplace health insurance plan. (You can use an HSA with a marketplace plan, though.) In most cases, you must use the money in your FSA within one year. Any leftover cash cannot be rolled over into the following year.\n<\/p>\n 3. Don\u2019t Miss Your 401(k) Match <\/p>\n A traditional 401(k)<\/a> (not a Roth<\/a>) lets you save pre-tax money from your paycheck using payroll deductions<\/a>. This lowers your taxable income and your tax bill. (A Roth account works differently: you pay the taxes upfront, in the year you make the contribution, so you can withdraw the funds tax free in retirement, as long as you’re 59 \u00bd or older.)\n<\/p>\n The IRS limits how much you can save in a 401(k) each year, adjusting annually for inflation. If you’re 50 or older, you’re allowed a catch-up contribution<\/a>, giving you additional money for your nest egg.\n<\/p>\n Your company might provide an employer match<\/a>. This means 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.\n<\/p>\n For example, your company might offer a 100% match on the first 3% of your salary. So if you earned $50,000 and contributed 3% of your salary to your 401(k),<\/a> your employer would also contribute 3% ($1,500). Note that matching contributions are capped\u2014so if you contributed more than 3%, your company would still contribute 3%. If you contributed 2%, your company would contribute 2%, and so on.<\/p>\n Consider any employer match when you decide how much to contribute to your retirement plan. A solid goal is to aim to contribute at least 15% of your salary to your 401(k) each year<\/a>. So if your employer contributes 3%, you should contribute at least 12%. Using the example above, your 12% annual contribution would net $6,000 on a $50,000 salary, giving you a total of $7,500 with your employer match.\n<\/p>\n Fast Fact<\/p>\n 29% of savers aren’t taking advantage of their company’s 401(k) matching contributions, according to Empower.<\/p>\n 4. Evaluate Your Employee Stock Purchase Plan (ESPP) <\/p>\n Consider taking advantage of an employee stock purchase plan<\/a> (ESPP) if your employer offers one. An ESPP lets you buy your company’s stock at a discount. Here’s how it works:\n<\/p>\n Determine how much you’d like deducted from your paycheck.The company deducts after-tax dollars from your paycheck through payroll deductions.The stock is bought on the purchase date, usually at a discount of between 5% to 15% of the market price, depending on the type of plan.<\/p>\n Some companies require you to work for at least one year to qualify.\n<\/p>\n Plans often come with what’s called a lookback feature. This can give you a better deal.\n<\/p>\n Ensure that you diversify your holdings and you aren’t putting all your eggs in one basket. And make sure you review the holding periods and tax treatments of ESPPs before you dispose of any stock to avoid any income tax shock.\n<\/p>\n 5. Check for Hidden Workplace Perks <\/p>\n Employers often offer perks as incentives for their employees. Look for the following:\n<\/p>\n Educational benefits: Some companies offer tuition reimbursement, scholarships, and stipends. You can use these to fund and further your professional development.Commuter benefits: Your company may grant you money to cover the cost of public transport, parking, or rideshare services.Health and wellness benefits: Use these to cover things like meal allowances and gym memberships.<\/p>\n You may need to enroll and reapply for these benefits each year. Benefits like these can save you a lot of money and cut down your cost of living.\n<\/p>\n 6. Claim the Tax Credits You\u2019re Eligible for <\/p>\n Tax credits<\/a> can be a boon at the end of the tax year<\/a>. They’re often are more valuable than tax deductions<\/a> because they directly reduce how much tax you owe. Some of the most common (and most overlooked) tax credits are:\n<\/p>\n Earned Income Tax Credit: You can reduce your tax liability and potentially increase your tax refund if you have a low or moderate income. Keep in mind that this isn’t an exhaustive list, and your eligibility may depend on your income level and tax filing status.\n<\/p>\n 7. Make the Most of Rewards Credit Cards <\/p>\n
\nYou can invest money in your HSA in assets like stocks, bonds<\/a>, and more, the same way you would with a retirement account<\/a>.
\nInvesting annually in an HSA allows you to take advantage of compound growth<\/a>.
\nAny unused money can be rolled over to the next year.
\nIf you change jobs or health plans, you can take your HSA with you to your new employer.<\/p>\n
\nThe IRS sets and adjusts FSA limits annually for inflation<\/a>. Some employers can set lower limits for their own plans. Married couples can contribute to their own plans to meet a combined household limit.<\/p>\n
\nSaver’s Credit: This tax credit incentivizes you to save for retirement as long as you meet certain requirements.
\nChild Tax Credit<\/a>: You can reduce your federal tax liability if you have one or more qualifying children by claiming this credit.
\nChild and Dependent Care Credit<\/a>: You can claim a tax credit if you paid for the care of a qualifying child or other individual so you or your spouse could work or look for work.
\nHome energy tax credits: You can claim tax credits for certain qualifying home improvements you make.
\nEducational tax credits: You can reduce the amount of tax you owe by claiming an educational credit, such as the\u00a0American Opportunity Tax Credit (AOTC)\u00a0and the\u00a0Lifetime Learning Credit (LLC), as long as you qualify.<\/p>\n