Now that we are in the throes of summer, I wanted to do a special series for my millennial counterparts who are or will be new parents! As you are beginning to grow your family, there are so many things to prepare. I see it all the time. Many people will move their financial plans to the back burner during this big transition. You can take these few steps, so you keep your focus on your new bundle of joy and know your financial goals are still protected in the background!
This first tip is for the parents who are not parents yet, maybe you are trying to conceive, or you’re about to start fostering or the adoption process.
Whichever of those that may apply to you, you are about to have a new person or persons dependent on your care and income. New parents shouldn’t ignore this tip either! This is the perfect time to review your life insurance policies & disability insurance policies. If you do not have any in place, start researching quotes for you and your spouse or significant other. Also, check what is available through your employer, as they will likely have some special pricing for employees. This is important even for those who are not currently bringing in an income to the household by staying at home. You are providing a level of service that would be costly to replace if something were to happen to you. We all know how costly childcare alone can be. Having something in place can help ease the financial burden if something were to happen when you have a new child who is completely dependent on you!
For the new parents out there, congratulations!
As you are navigating this uncharted territory, this time probably feels like survival mode. Now is the time to start looking at your company benefits. Potentially, you or your spouse may have a dependent care FSA (Flexible Spending Account) benefit. By using this benefit, you can set aside pre-tax funds for childcare directly from your payroll. According to the National Institutes of Health, the 2022 household maximum is $5,000 or $2,500 if married, filing separately. If you or your spouse have this option through their employer, it could save you anywhere from 10-37% in taxes, depending on your income tax bracket! For example, if you’re spending $1,500 a month on childcare, you could use the maximum pre-tax contribution and save between $250 per year (married filing separately at a 10% tax rate) and $1,850 (married filing jointly at a 37% tax rate) per year, depending on your tax bracket! Those annual savings alone could pay for a month of daycare, formula, or burp cloths!
Parents-to-be & new parents alike, I know this last tip will not be your favorite thing to think about, but it is the most important.
You absolutely do not want to forget to review or create your estate plan with an attorney who specializes in estate planning. An attorney will go over what you need in place to make sure the children are taken care of should something happen to one or both parents. This is so important to protect your family should something happen to you and the primary caregivers for your children (i.e., spouse or significant other). This is especially important for couples who are not married and have children together and for blended families.
As a financial advisor, I love working with young families to help guide them as they’re building their lives.
One of my roles is to help look at ways to protect your financial picture. Building your estate plan, reviewing insurance to cover a loss of life for one or both parents, and finding tax savings on dependent care seeks to help protect your financial plan & goals! Many young families are just looking for somewhere to begin. These tips provide a place to start that your family will appreciate for years to come.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.