Posted by YourIRSTaxAdvocate.com

Financial Steps for New Parents

Financial Steps for New Parents

Are you a new parent? Then you may want to consider these financial steps

Is there any addition in your family members or anyone you know? It is easy for new parents to overlook some key financial steps to take with the excitement of a new baby. Below are some seven steps you might want to share to someone you know or consider for yourself:

1. In your health insurance policy, add your child

You may have a limited time to add your child to your policy if you get insurance through your employer. But to make sure your little one is covered, you should know all the important things. If you're concerned about your baby's potential health care cost, you can switch to a lower deductible plan. You should be aware that you can now contribute $3,500 more to a health savings account (HSA) for 2019 if you are in a high deductible plan and you are switching from an individual to a family policy. 

2. Update your beneficiary designation, trust, and your will

Designating who will inherit your assets is not your will covers. If something will happen to both parents, it can also designate who will be the guardian of your child. If it is not in your will, the decision on who will take care of your child might be decided by the court which you would not want to happen, of course. Allowing you to draft a will and other basic estate planning is offered by some employers as a benefit for free.

In any of your accounts, trusts and life insurance policies you might also want to add your child as the beneficiary since those beneficiary designations trump on your will. Even if your will divides equally among your children, if you failed to update your documents then you will unintentionally disinherit your child from a significant portion of your asset. Your child could lose significant tax benefits and your retirement accounts would go into your estates if you don't fill out the beneficiary forms at all. 

3. Make sure you have sufficient life insurance

Make sure your child has enough to live comfortably once you have decided who will take care of your child and what your child will inherit. That could be easier if they're going to be raised by their guardian who is a rich uncle than being raised by your spouse as a single parent. If something unfortunate will happen to you, the bright side is your family may qualify for a benefit from Social Security. 

You may need to purchase life insurance if that won't be enough. Term insurance covering the length of time you need which is until your child can support themselves is generally the most cost-effective option. 

After your child's birth, your employer may also offer you a window of time to purchase additional life insurance without a medical exam. This may be much cheaper especially if you have health problems than buying a separate policy that requires underwriting. If your health deteriorates and you leave your job, you could be at risk of becoming uninsurable that's why it is very important to check if the policy if portable. 

4. Childcare expenses should be planned

Try contacting your state's Childcare Program Office for financial assistance if you think you can't afford the childcare expenses due to limited income. You can also see if your employer offers a dependent care FSA (flexible spending account) that you can contribute to pre-tax and use the money tax-free for dependent care expenses which is like a discount equal to your marginal tax rate. Don't contribute more than you expect to spend that year since the FSA is a use-it-or-lose.

On your taxes, you can also claim a dependent care credit. You cannot use the credit and the FSA for the same credit. Generally, the FSA is better for families in higher tax brackets while the dependent care credit is better for families in the 15% tax bracket or lower. 

5. To your budget, make some adjustments

You may not only have insurance and childcare as an addition to your expenses. Taking care of kids is expensive but there are some things that you can do to make them a little less so. For example, it is better to shop baby clothes at discount retailers like Target and Old Navy and even consignment shops since it doesn't make sense to buy a lot of clothes that they quickly will outgrow and since they are too young to care what they look like. Babies won't know the difference if you will purchase used toys and baby furniture. 

If you need additional financial advice, consider consulting an Account or a Financial Expert to help guide you into making the right decisions for your family. 

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