Beyond the joy brought to parents from having or adopting a child, this is a huge financial transition in their lives. There are a number of issues to consider including how the costs of caring for a child will impact both their short-term cash flow and their long-term saving and wealth-building objectives.
In this checklist, we cover a number of financial issues that to consider when having or adopting a child including:
- Cash flow issues that your clients need to consider including the additional costs to their budget involved with raising a child. If one of the parents decides to be a stay-at-home parent, how does the loss of income impact their short and long-term financial picture? They should check to see if either employer offers any sort of assistance such as childcare subsidies or extended paternity leave.
- If they receive any cash gifts on behalf of their child, its wise for the parents to consider funding a 529 plan to help with college savings. They will also want to see if they can increase their funding to an HSA if they have one to cover increased medical costs on a tax-efficient basis.
- Ensure that they notify their health insurance provider in a timely fashion to ensure that the new child is fully covered. In selecting a pediatrician for the child, they will want to consider whether the doctor is part of their provider’s network.
- It’s key to have adequate life insurance coverage in light of the addition of the new family member.
- Review tax situation to ensure they take advantage of any tax credits relating to the child and any dependent care that they may be entitled to. If the child was adopted, they may be entitled to a tax credit related to that as well.
- Having or adopting a child is a good time for parents to start doing some long-term planning issues around areas like saving for college or perhaps a child’s wedding. Estate planning issues such as a will and updating beneficiary designations should be front and center as well.
This article represents opinions of the authors and not those of their firm and are subject to change from time to time, and do not constitute a recommendation to purchase and sale any security nor to engage in any particular investment or legal strategy. The information contained here has been obtained from sources believed to be reliable but cannot be guaranteed for accuracy.