Budgeting for a New Baby

Follow a few of these 'baby' (yeah, we know) steps

Courtesy of USAA

You may have to spend your money in different ways once your new bundle of joy comes along.  But a little planning can help you maintain financial security as your family grows.

Gifts from Grandparents

Beyond the gift of babysitting, grandparents with dollars to share can ease college costs by funding tax-deferred 529 college savings plans, suggests financial planner Terry Gaertner.  Under current rules, grandparents could even front-load 529 contributions by putting in up to five years of the maximum annual amount, currently $12,000, without incurring gift taxes* - that’s $60,000.  “So they could, between the two, put in $120,000 in one year without incurring any gift tax,” Mr.  Gaertner explains.  Don’t have that kind of money?  Whatever you give now will be an investment and can grow over time. 

*Subject to add-back rule if contributor dies within five years of giving gift. 

These fundamental moves help protect a growing family. 

• Look at life insurance.  For parents, it’s essential and much more affordable than you might think.  You’ll also get better rates when you’re young.  Talk to your life insurance company about what amount will give your family the best protection, and don’t leave your loved ones in the lurch. 
• Update your will and appoint a guardian.  Sean Sebold, an Illinois financial planner, recommends naming a contingent guardian and updating the will in case the primary guardian’s status changes.  Otherwise, a judge might have to appoint someone you’ve never met to raise your kids.
• Take advantage of tax savings.  The Internal Revenue Service allows an exemption for every new dependent and also grants child credits currently worth $1,000 per child younger than age 17.  The earned income tax credit can save on taxes for parents whose income qualifies them.  And parents who have to work and pay for daycare can take advantage of a childcare credit.