Women’s Series: What to do when you have a baby
Adding a new member to the family is exciting. Going from the simplicity and comfort of being married to a new life as parents is a lot of fun, but overwhelming. It is an especially anxious transition when it dawns on you how much your finances will change, not only initially, but during the different stages of parenthood.
Questions to ask yourself when you have a new baby:
- Who will be your baby’s guardian if something happens to you?
- Is your Will up to date and does it include your child?
- If something does happen to you and your child lives with a guardian; will that family have the financial wherewithal to care for your child? Have you made alternative financial arrangements?
- Do you have enough life insurance?
- How and when will you start saving for college?
- How should I update my beneficiary designations on my IRAs, retirement plans and life insurance?
There are a lot of new expenses to get used to when having a new child: increased grocery bills, new child care costs, medical and baby-item expenses are among the most often thought of. The day-to-day changes are inevitable and it’s already planned for you there are certain activities all new parents are responsible for and are baby-driven. It’s important to maintain perspective; make sure your wealth planning is updated as well.
One of the most important decisions I had to make was who I was going to leave my child to if something unexpected happens to me and my husband. It was especially difficult for us since we are both only children. Although making the decision was difficult, it was important to identify who we wanted to care for our child, in writing, in our Wills. Making sure your children go to the adults you feel most comfortable with is extremely important. Also making sure that the family who will be caring for your child will have the finances to care for your child is important. My child attends a private school; I certainly do not expect her guardians to pay out of pocket to keep my daughter there. Through our Will we have made sure that all of our daughter’s expenses will be taken care of by a trust being set up for her benefit. There are a variety of strategies in order to provide for your children. As you plan for the future, it would most certainly prove beneficial to discuss the alternatives with your financial advisor.
College seems so far away when you first have a baby, but imagine being able to grow your assets for 17-18 years prior to using them for college expenses? Saving for college is similar to saving for retirement – the earlier you start saving the better off you should be. I had my daughter in 2011 and in 2012 a study came out that for children being born in 2011 a four year in-state college degree is expected to cost $195,592 (using a 6% annual inflation figure) or a four-year private college degree is expected to cost $440,5841 . As if all of the other expenses that I worry aren’t enough, now I have to come-up with $195,592 to $440,584 for a college education? So, for Gabby’s birthday every year I ask my parents and in-laws to help fund her 529 plan. Gabby gets so many toys for her birthday and as most of you know a toy may be forgotten within a few months or sooner, but college money will not only be there when she graduates high school it will grow and hopefully provide most if not all of college’s expenses.
There are several avenues to save for college: 529 plans, Coverdell education savings accounts, custodian accounts, savings bonds and regular brokerage accounts. The best option for your family is based on your specific needs.
Life insurance can be a sticky topic; some people love life insurance and some don’t. I like having the confidence of knowing that my family will be taken care of if something happens to me. I want to know that all of the debt will be paid off, my husband will have the money to pay for school, college and all other expenses related to our daughter and be able to use the money to help fund his retirement. I do suggest to most couples that have no life insurance or minimal coverage to increase their life insurance once they start having children simply based on the increased expenses and future college costs. We have an insurance needs analysis tool that I use for families based on their planning goals. If you are interested in this tool please let me know.
A lot of families want to name their minor children as beneficiaries on their retirement plan, IRA accounts and/or life insurance policies. Please know that any child under the age 18 will not be given your assets; your assets will be given to their guardians. In most instances it’s also not recommended to put your estate as a beneficiary because tax-free assets such as your IRA and retirement plan will be immediately taxed once it’s transferred to a taxable account or your estate account. There are a variety of strategies to avoid the taxation of IRAs and it is advisable to discuss your beneficiary designations with either both attorney and financial advisor.
Extending your family is fun, exciting and can provide for the best and most memorable years of your life. Please remember to make the little changes now that potentially can make a big difference later. If there is anything I can help you with please let me know.
The next Women’s newsletter will be about: Steps to take after divorce
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Any opinions are those of Christina Jones and not necessarily those of Raymond James. RJFS financial advisors do not render tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
- Landsman, Stephanie. What College Tuition Will Look Like in 18 Years. Retrieved from https://www.cnbc.com/id/47565202#.