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Financial considerations for the expanding family


Individuals 05.31.2018 3 MIN READ


The gift of a child into your household changes everything from both a personal and financial perspective. There are ramifications in terms of expenses, taxes, insurance and estate planning. Learn how you can prepare yourself for the joyous and all-encompassing responsibility of becoming a parent.

 

The arrival of a new child signals a transformation in all aspects of your life, including your finances. The Department of Agriculture estimates the cost of raising a child to age 17 is $233,6101 – and doesn’t include college. With this sobering statistic in mind, you can plan ahead to make the family journey easier.

Begin with a budget

Start by updating your budget with additional expenses including diapers, formula, toys, books and daycare if needed. There are many ways to minimize your expenses:

  • Consider swapping items like toys and books with friends or family 
  • Join a wholesale club or schedule regular deliveries for diapers and/or formula, which can provide discounts 
  • Use your employer-sponsored benefits as appropriate for tax or other savings

Utilize your benefits

When it comes to employer-sponsored benefits, you may want to think about:

  • Enrolling in a dependent-care flexible spending account (FSA) where you put aside pre-tax dollars, up to a limit, for childcare 
  • Adding your child to your health insurance plan 
  • Enrolling in, or changing your contributions to, a healthcare FSA or Health Savings Account


Tip: Welcoming a new child is a qualifying life event, which allows you to make changes to your benefits outside of annual enrollment.

You could use a break

Your tax situation will be affected as well. You may now be eligible for additional tax benefits, including:

  • Child tax credit of $2,000 for each minor dependent up to age 17
  • Dependent care credit of up to 35% of expenses up to $6,000  


Tip: You can’t double-dip with the dependent care FSA and the dependent care credit but, depending on the amount of your childcare expense, you may be able to take advantage of both. Work with a tax preparer to identify the strategy that will be most beneficial for you.

Protect those you love

Consider ways to protect your growing family, including:

  • Meeting with your insurance agent to
    • determine if your life insurance coverage still meets your needs 
    • discuss disability insurance if you don't have it already
  • Meeting with an estate-planning attorney to
    • create a will (or revise an existing one) and potentially also a trust
    • coordinate your estate plan and beneficiary designations


Tip: You may have access to legal benefit through your employer’s coverage. Consider starting there to find an attorney if you don’t already work with one. 

Saving for education

To help pay for your child's education consider starting to save now. There are several accounts that may be used to save for education:

  • Custodial accounts or Coverdell accounts, (also known as Education Savings Accounts or ESAs)
  • 529 savings plans, which grow tax-free and withdrawals that are used for qualified education expenses are free of federal taxes. With 529 plans, in some states, you can get an income tax deduction just for putting money into the plan


There’s a lot to think about, but with proper planning you can be as prepared as possible before the arrival of your new child.
 

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1The Department of Agriculture, 2015.

 

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