Make the Most of Free Money

 

 Here is a financial New Year’s resolution: make the most of free money! “Free money” is exactly what these two words indicate: money (or goods and services in lieu of cash) that comes with no (or sometimes a few) strings attached. Free money does not have any work requirement, however, and is often income tax-free. Common sources are businesses, individuals, and the government.

 

Listed below are ten sources of free money:

 

 

Credit Card Rewards- Credit cards provide different types of free money including cash-back rewards and free airline trips. Someone charging $50,000 in a year on a 2% cash-back card would earn $1,000! Cash-back rewards are considered a rebate by the IRS and are not taxable.

 

Employer Match- This is money contributed to employees’ retirement savings accounts to match what they save. Matched savings provides a guaranteed investment return (e.g., 50% for a fifty cent per employee dollar saved match) and is taxed as ordinary income in retirement.

 

Inheritance- This is cash or property given to the beneficiary of a deceased person’s estate, typically via a will or trust. Inheritances are not considered taxable income by the federal government but earnings on inherited assets (e.g., stock or mutual fund shares) are taxable.

 

Life Insurance- This is money transferred to a beneficiary via a deceased person’s life insurance policy. Like inheritances, life insurance is generally not subject to income tax.

 

Product Rebates- Rebates are cash or product rewards provided to customers who make a purchase. They are considered a “price reduction” and are not taxable income.

 

Public Benefits- This is cash or services provided by government or non-profit agencies. Think SNAP (formerly food stamps), rental assistance, food pantries, and home energy assistance.

 

Retail Rewards- Loyalty programs are common among retailers and restaurants and shoppers can earn points that convert to cash-off or free meals. There are also multi-vendor rewards programs like Rakuten and Ibotta. The IRS views these rewards as discounts and not income.

 

Tax Refund Adjustments- Sometimes people miss a tax credit, deduction, or adjustment and need to file an amended tax return. The refund, while technically a return of their own money, is tax-free and is “found money.” If they didn’t discover their tax error, they would not have it.

 

Unclaimed Money- This is money held by state governments from a variety of sources including bank accounts, utility deposits, pension benefits, and insurance policies. It may or may not be taxable when reclaimed. To find unclaimed funds, visit www.missingmoney.com.

 

There is likely some free money out there for you. Claim it!

Best wishes for a healthy, wealthy, and happy 2024.