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New Parent

New Parent Financial Checklist

New Life – New Responsibilities – New Parent Financial Checklist

I am at the age where some of my closest friends are starting to grow their families.  Hearing the excitement in their voices and seeing their eyes light up around their children is truly special.  That being said, having or adopting a child is obviously a life-altering event with major financial implications.  That can certainly be overwhelming and cause new parents to ask, “What do we do now?”  Cue Uncle Mike – Wealth Advisor! 

Revisit Your Financial Plan

Bringing a child into your family may cause you to reconsider the short and long-term financial goals that you had previously laid out for yourself.  You’ll want to be sure to update your goals in your financial plan.  For example, adding college tuition costs or a future gift for a wedding, which can be impactful.  In addition, it is highly likely that your regular household budget will change meaningfully.  Food, diapers, and childcare costs can be significant.  Working with your financial advisor to balance higher expenses with continued savings (retirement savings, education savings, etc.) is a worthwhile exercise. 

Review Insurance Coverages

Health

Following the birth of a child, you typically have 30 days to add them to an existing policy.  Some insurance companies will recognize the claims submissions related to the birth of the baby and may contact you about updating your insurance, but being proactive never hurt anybody.  In most cases, you will be able to make updates through your insurance company’s mobile app or over the phone.  The birth of a child is also considered a qualifying life event and therefore triggers a special enrollment period.  As a result, you do not have to wait for a new enrollment period to get coverage for the baby.

Life

Reviewing the current life insurance you have in place and determining whether it is sufficient is important.  For many, life insurance is purchased to serve as an income replacement vehicle in the event a spouse passes away during their earning years.  As I mentioned earlier, children bring on higher expenses and new longer term financial goals that need to be considered when determining an appropriate death benefit.  Your advisor can help you navigate the insurance landscape to help you select the right type of insurance (term vs. whole) and ownership structure (outright vs. life insurance trust).

Disability

Ensuring that you maintain your income (or at least a majority of it) in the event of a disability is critical as well.  Check with your employer regarding your company’s group disability coverage.  Oftentimes, individual disability policies are much more expensive.    

Open 529 College Savings Plan

College tuition is probably one of the most talked about expenses between advisors and clients.  Not only are these costs significant, but they continue to increase annually at a baffling rate and there is constant uncertainty around which direction they will go in the future.  For many, it likely makes sense to start saving early and often.  529 College Savings Plans are tax-advantaged accounts whose assets are earmarked for education.  Any contributions that you make to a 529 plan grow tax-deferred and can be distributed tax-free for qualified education expenses.  Some states offer tax deductions if you are a resident and contribute to that state’s specific plan.  There are differences in investment options and costs between each state’s plan, so talk to your advisor about where it might make sense to establish your 529.

Review Estate Planning Documents

You want to be sure that your estate is properly set up so that your assets flow per your wishes at death.  A will is the basic document that will outline that distribution process and applies to most assets in your estate.  A will does not dictate where your retirement assets (IRAs, Roth IRAs, 401(k) plans, etc.) flow at death, so it’s important that your beneficiary designations on those accounts are up to date too.  Other basic documents that should be drafted include Powers of Attorney (appoints someone to make financial decisions on your behalf if you’re incapacitated) and Health Care Proxies (appoints someone to make health care decisions on your behalf if you’re incapacitated).

When you have children, there are a couple of other important considerations.  One piece that is sometimes overlooked is appointing guardianship over your child in the event both parents are deceased.  Also, trust planning can come into play with children with the intention of protecting assets that are left to them until they reach certain ages or in perpetuity.

Update Tax Forms

Parents can claim the Child Tax Credit, which is a dollar-for-dollar reduction of the income taxes that you owe.  In 2021, the American Rescue Plan expanded the Child Tax Credit and increased the amount to $3,600 for qualifying children under the age of 6 and $3,000 for qualifying children under the age of 18.  There are income limits and phaseouts for receiving this credit, which kick in if a married couple’s modified adjusted gross income is over $150,000 (credit reduced to $2,000 per child regardless of age).  Once MAGI hits $400,000, the credit is further reduced by $50 for each $1,000 of MAGI over that threshold. In 2022, this expansion of the Child Tax Credit is set to revert back to $2,000 per child under age 17.

One of my favorite parts of this job is watching families grow and building relationships with multiple generations.  Much of the work that we strive to do is not only to help current clients achieve financial well-being, but also to set up future generations for financial success.  If you are looking to have a conversation about family wealth and legacy planning, please reach out to us.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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