Financial and Legal Tips for New Parents
Here are some helpful tips for providing a solid financial foundation for your child.
After the birth or adoption of a child, there are three financial and legal things that generally should be taken care of nearly immediately.
- One, get your child a Social Security number. You’ll need it to claim your child as a dependent on your tax return. The easiest time to apply for the number is at the hospital when you are providing information for the birth certificate.
- Two, add your child to your health insurance plan. Check the plan documents to find out how much time you have after the birth or adoption to enroll your child.
- Three, name a guardian for your child in your will. If you do not name a guardian and both parents die, a curt will choose someone to raise your child.
While you are amending or creating your will, talk to your estate planning advisor about other legal measures or changes to your estate plan that can help protect your child’s financial future. For example, you may want to address how any assets you leave your child are to be managed if you die before the child is an adult.
Speaking of your child’s financial future, if your child would suffer financially without your income, consider purchasing life insurance in case you die before the child reaches adulthood. For many young families, term life insurance is a good choice, enabling them to purchase coverage for just those years while they are raising children or paying a mortgage.
The addition of a new child may also change your tax picture. The Child Tax Credit alone may reduce your federal income taxes by up to $2,000 per child per year if you are eligible to claim it. In light of the potential tax breaks, it’s a good idea to review how much tax is being withheld from your pay and perhaps supply your employer with a new IRS Form W-4 so that less tax is withheld.
A “To Do” List for Parents
These items on the list are general in nature so please seek advice from us or your tax advisor about your specific situation.
- Get a Social Security Number for your child so that you can claim your child as a dependent on your tax return.
- Add your child to your health insurance plan.
- Name a guardian for your child in your will.
- Check with your estate planning advisor to see if other changes are needed.
- Consider increasing your life insurance coverage now that another person depends on you financially.
- Start saving for college. Consider opening a 529 education savings account.
- Keep track of your child care expenses. You may be eligible to claim the Child and Dependent Care Tax Credit.
- If your employer offers Dependent Care Flexible Spending Accounts (FSAs), consider opening one if it provides you with a larger tax benefit than the tax credit mentioned above.
- If you hire a nanny, brush up on the rules for paying employment taxes for household employees.
- Introduce the concept of saving by having your child set aside money for what he or she wants.
- Have your child open a savings account, either through school or your bank.
- Review your life insurance coverage. As your income grows so may the amount of life insurance needed to help maintain your family’s financial security.
- Consider increasing the amount you save each year for college.
- Discuss college and career choices with your child.
- Review your financial situation to see if you are on track to paying for college.
- Explore your child’s financial aid options, such as scholarships, grants, and student loans.
- If your child plans to attend college, file a Free Application for Federal Student Aid (FAFSA) as soon as possible on or after October 1 of your child’s senior year in high school.
With offices in Rutland and Williston, Vermont Copper Leaf Financial develops a customized wealth management plan designed to integrate every aspect of your financial life. Our approach is to conduct business in an orderly fashion, especially in a disorderly world. Where there is uncertainty we look for facts. We call our approach evidence-based investing. Call us today at 802.878.2731 to schedule a strategy session and begin building your road map to financial success.
Article published in April 2020 edition of Eye on Money. If you would like to be added to our mail list please email email@example.com.