The birth of your child will affect your taxes, insurance, budget, savings plan, and everything else that pertains to your financial life. Here’s a handy checklist of financial items to take care of before and after your baby is born:
- Maternity/paternity leave: Find out how much time you/your spouse can take from work, how much of it is paid, and what you’ll do for child care once leave expires.
- Budget: Adding a new member to your family is sure to incur costs, especially when you consider all of the costs unique to babies—formula and baby food, baby gear and furniture, child care, medical care, etc. If one parent decides to stay home from work, you’ll also have to adjust to the loss of income.
- Cash flow: Decide whether one or both parents will continue to work. If one parent stays home with the baby, decide how long that arrangement will last and whether the working spouse can support the family on his or her current salary.
- Health insurance: Make sure you understand how much of your pregnancy and delivery fees are covered. Add your new baby to your health insurance plan within 30 days of birth—otherwise you may have to wait until the next open enrollment date.
- Life and disability insurance: You’ll want to increase coverage on both now that more people are dependent on your income, especially if your current coverage is inadequate or nonexistent.
- Taxes: You may want to increase your allowance on your IRS Form W-4 through your employer to account for the increased deductions you’ll receive now that you have a child. When tax season comes around, make sure you’re getting all applicable deductions and credits, such as the child tax credit and the child and dependent care credit.
- Estate planning: If you don’t already have a will, create one now. Designate who will be your child’s guardian(s) should you and your spouse die. Adjust the beneficiaries on your retirement plans, bank accounts, life insurance, and other accounts to include your child. You may also choose to set up a trust to manage estate assets in case your child is below the age of majority when you die.
- Saving for college: The earlier you start saving for your child’s education, the more time your investment will have to grow. Consider setting up a 529 account in your child’s name. These accounts grow federally (and in most states) tax-free as long as the funds are used to pay for college, and some states allow deductions or credits related to 529 contributions.
- Retirement: If you haven’t started a retirement plan yet, start one now. If you already had one pre-baby, continue regular contributions after the baby is born. Don’t shortchange your own retirement account in favor of childcare expenses or saving for your child’s education—there is financial aid for college but not for retirement. If you don’t save adequately for retirement, your child could end up having to support you.
If you have any questions about how to proceed with any of these steps, call our office at (801) 274-1820 to set up an appointment.