How to Save a Bundle for Your New Bundle of Joy
Your beautiful baby has arrived. The house is childproofed, you’ve got the pediatrician’s phone number posted on the fridge, and a brand new car seat sits in the back of your minivan. But physical safety is just part of the challenge. You also need a game plan that will keep your growing family financially safe. Here are some tips, both financial tax, that can help you build a sound financial base for the future.
1. Consider Life and Disability Insurance
From diapers to diplomas, the cost of raising a child can really add up. If something awful were to happen to you or your spouse, life and disability insurance offer a safety net to keep your loved ones’ financial lives on track. You can get an estimate of your insurance needs by using the online calculators at the non-profit Life and Health Insurance Foundation for Education (LIFE).
2. Build an Emergency Savings Fund
You never know when your roof will spring a leak or when the job market will turn sour. Keeping six months of income in a savings account or money market fund can help weather life’s inevitable pitfalls. Try setting aside money at the beginning of the month, not the “extra” at the end – there’s rarely any extra!
3. Start Saving for College
Your baby may not even be crawling yet, but with college costs rising 40% in the last decade, it’s a good idea to start saving early. Consider opening a Section 529 college savings account. As long as you use the account for qualified higher education expenses, all distributions will be tax-free.
4. Let your employer help
Many employers offer flexible spending accounts which allow you to set aside thousands of dollars in pre-tax income to pay for qualified childcare and healthcare expenses. Depending on which tax bracket you are in, using these accounts can save you thousands of dollars a year.
5 . Claim the child care credit
Your baby brings a new dependent deduction for your tax return, but other benefits are available as well. Though child care is expensive, Uncle Sam can help take the sting away with a tax credit. If you work and pay for child care, until your child turns 13, you can claim up to 35% of the first $3,000 of expenses ($6,000 for two or more children). Nursery school, private kindergarten, after school programs and day care are all qualifying expenses.
The financial stakes rise considerably when you bring a new child into the world. As you travel the road to financial security, be sure to take time to enjoy your new baby!
Click here for more tax tips for new parents.