Financial First Steps Before & After Having a Baby - By Peter Geckeler
My wife and I are expecting our first baby in January of 2020. We are so excited to meet the little one - but being the type-A planner that I am, my mind quickly raced to the financial decisions we would need to make as a result of our little one coming into the mix. Since I am going through the process now, I thought it could be helpful to outline the four key considerations that Allison & I are thinking through to prepare for life’s unknowns as our family grows from two to three:
- Insurance Updates: Check your individual health insurance policy for specific guidelines on adding coverage for your newborn (most plans give parents 30 days after the birth of the child). Missing this deadline may require waiting until the next annual enrollment period to add your baby to your plan. Also, review your life insurance coverage and consider increasing the death benefit on both spouses now that there is an additional little one to provide for.
- Kick-Start Your College Savings Plan: The most compelling college-savings vehicles offer attractive tax advantages. State-sponsored 529 plans have built-in tax incentives, and the age-based all-in-one 529 options allow you to invest money in a portfolio that gradually becomes more conservative as your child nears college age. If the baby's grandparents or favorite aunts and uncles would like to save on your child's behalf, they too can make state tax-deductible contributions into a 529 plan.
- Don't Forget Basic Estate Planning: Another key step is to designate a legal guardian for your child; a person who understands and is comfortable with the implications and responsibilities involved. You should also consider drafting a Last Will & Testament or updating the estate documents that you already have in place.
- Take Advantage of Tax Benefits: Start by applying for your child's Social Security number right away for tax purposes. All parents are eligible for the Child Tax Credit, which offers up to $2,000 per qualifying dependent child 16 or younger at the end of the calendar year. Parents can also qualify for The Child and Dependent Care Credit – This credit can get you 20% to 35% of up to $3,000 of child-care and similar costs for a child under 13 so that you can work (and up to $6,000 of expenses for two or more dependents).
- Revisit cash reserves and cash flow: Baby cribs, carriages, car seats, all cost money unless someone gifts them. But there are also those room decoration costs for the baby’s room and certainly not the least or last are the costs of baby formula’s and we are told we will need 5000 diapers if we do disposables!
If you have any additional questions about the four items listed above, or just want to discuss other planning measures related to a child, don’t hesitate to reach out. I would also love to hear your money tips related to parenting. I look forward to speaking with you!