When you add a child to your family, either through birth or adoption, it’s obviously an exciting and joyful time in your life, and it’s also a busy one, as you deal with all the challenges and commitments faced by all parents. However, hectic as your life may be, you’ll still need to think about making some key financial arrangements to accommodate your new child.
Here are some suggestions to consider:
•Get a Social Security number. You’ll want to obtain a Social Security number for your child as soon as possible.
•Speak with a tax advisor. If you’re adopting a child, you might be eligible for federal income tax credits.
•Build an emergency fund. Obviously, a new child may mean a variety of new expenses. If you aren’t prepared for these costs, many of which may crop up suddenly, you might be forced to dip into your long-term investments. Such a move could slow your progress toward your important goals, such as a comfortable retirement. To avoid this potential problem, try to build an emergency fund containing six months’ worth of living expenses. Put the money in a liquid account so you can access it quickly and without penalty.
•Research options for a special needs child. If you have a special needs child, you may want to explore any available government benefits and consider speaking with an attorney about your legal options.
•Consider disability insurance. You may want to purchase disability insurance, or review your current policy, to ensure your family’s needs are covered should you become ill or disabled and cannot work for a while.
•Review your life insurance. It’s essential that you maintain adequate life insurance to cover your family’s future financial needs, including education costs. While your employer may offer you a group policy, it might not be sufficient to keep up with your growing family. There’s no one “formula” for determining the appropriate amount of life insurance, but a professional financial advisor can review your family situation and recommend suitable coverage.
•Save for college. Given the high costs of higher education, it’s never too soon to start putting away money for college. You may want to consider a tax-advantaged account, such as a 529 plan, which offers high contribution limits and provides you with the flexibility to switch beneficiaries, if necessary.
•Review/add beneficiary designations. You may want to change or add beneficiaries to your IRA, 401(k), life insurance, annuities and other accounts.
•Explore a custodial account. You might want to consider a custodial account, such as an UGMA or UTMA, that allows you to transfer assets for the benefit of a child under 21. (Consult with your tax and legal advisors before making this move.)
Of course, you don’t have to take care of all these items at once. But by methodically working your way through this list, you will eventually adjust your overall financial strategy to include your new child, which means you’ll be helping your growing family make progress toward its important goals.