NEWS & RESOURCES

Smart Financial Moves for New Parents

As you start a family, consider these ideas.

Provided by Kyle Meissner, CPA at Cordell, Neher & Company, PLLC

Being a parent means being more responsible than you have had to be before. That increased responsibility will also impact your financial decisions. You are now a provider and a protector, and that may make some or all of the following financial considerations necessary.

Think about a adopting a budget. As a couple, you may have lived for years without budgeting. As parents, this may change in light of the added costs of raising a child. You will face many new recurring costs: childcare, clothes, toys, diapers, and food to name a few. Keeping track of weekly or monthly expenses will make creating a budget easier. (The Department of Agriculture has an online calculator where you can estimate the total cost of raising a child to adulthood. The math may surprise you: the U.S.D.A. puts the average cost at $233,610 for a middle-income family).

Take care of health and life insurance. Your new child should be added to your health insurance plan as quickly as possible. Most insurance providers require you to notify them of a child’s birth within 30 days. You should get started before then; be aware that getting a Social Security number and birth certificate can take weeks to arrive in the mail. If you are in a group health plan, talk with the human resources officer or benefits administrator at work, and let them know that you want to add a dependent to your health care plan. If you have coverage through a private plan, your premiums may go up after you notify the carrier. Under the Affordable Care Act, a parent or legal guardian who has health coverage arranged through the federal or state Marketplace has 60 days from the date of birth or adoption to enroll a child as a dependent on their plan; once that is done, health care coverage for the child will apply, retroactively.

Term life insurance may be an affordable way for new parents to continue to provide for their family under a worst-case scenario. Disability insurance (which may be available where you work) covers you in the event of an extended illness or injury that stops you from doing your job. If you have a Health Savings Account (HSA), you can contribute more per year when you have a child. The maximum annual contribution for a family is currently set at $7,000.

Draft a will and review beneficiary designations. A will should do more for parents than declare who receives their assets when they die. It should also specify their choice of a legal guardian for their child in the event both parents pass away. Additionally, a will should specify a guardian of the estate, to manage any assets left to a minor child. While you may have named your spouse or partner as the primary beneficiary of your IRA or investment account, you should at very least add your child as a contingent beneficiary.

Start saving a little for college. The estimated cost of four years at a public university starting in 2036? $184,000, CNBC reports. That may convince you of the need to open a 529 plan or have some other kind of dedicated college savings account with investment options. Most 529 plans require a Social Security number for a beneficiary, so they are commonly started after a child is born, rather than before. A 529 plan allows investments to grow tax free provided they are withdrawn to pay for the beneficiaries qualified educational expenses.

Review your withholding status and income tax forms. Adding a new member to your family means changes to your federal income taxes. You may become eligible for some breaks, like the Earned Income Tax Credit, the Adoption Tax Credit, the Child Tax Credit, and the Child & Dependent Care Credit, so you should consider adjusting your withholding to reflect these items.

Keep the big picture in mind. You still need to build retirement savings and having an emergency fund is even more important. Becoming a family may make accomplishing those important tasks harder, but you cannot neglect them.

After reading all this, you may feel like you need to be a millionaire to raise a child. The fact is, most parents are not millionaires, and they are able to manage. Whether you are wealthy or not, you need to take care of many or all of these financial and insurance essentials.

Kyle Meissner is a Certified Public Accountant with Cordell, Neher & Company, PLLC, a Wenatchee public accounting firm. Kyle may be reached at (509) 663-1661 or kylem@cnccpa.com. www.cnccpa.com

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