Financial Checklist for First-Time Parents
Becoming a parent is one of the most exciting (if sleep-depriving) times of your life. But for first-time parents, adding a new person to your family—and your budget—can sometimes be a challenge. You may wonder what you should be doing to set your family up for financial success. Below, we'll discuss five key financial tasks new parents should consider.
Add Your Child to Your Health Plan
Even if your open enrollment period for healthcare has already passed, having a child is a "qualifying event" for Section 125 Plans that will allow you to select a new plan or add your child to your current major medical plan. Employer plans generally have a set period of time after birth or adoption to add a child to a plan, so check your plan's rules to add your new child to the plan. If you're happy with your current plan, you may not need to do anything more than add your child to it. However, if you're expecting your healthcare costs for the next year to be significantly higher (or lower) than they were under your old plan, it might be a good time to re-evaluate your health plan options. Those who enroll in a qualified High-Deductible Health Plan (HDHP) can establish a Health Savings Account (HSA), allowing you to roll over healthcare dollars, saved on a pre-tax basis by you, from year to year. Other plans may offer Flexible Spending Accounts (FSAs), letting you put aside pre-tax dollars to spend on health expenses during the plan period.
Check on Your Retirement
Not only is it a good idea to add your child to your health plan, but you may want to add your child as a contingent beneficiary to any retirement plans you have. And while you're tinkering with your retirement, you may want to evaluate your ongoing plan contributions as part of your post-baby budget. Because pre-tax retirement contributions can lower your overall tax liability, it's possible that you'll be able to maintain or even increase your current contribution without much of an impact on your paycheck—especially after you tweak your tax withholdings to ensure they account for your new, larger family size.
Consider Life and Disability Insurance
If you don't already have life insurance and short- or long-term disability insurance, becoming a parent may present the perfect opportunity to protect your earning potential. Life insurance can provide a lump sum to your heirs if you pass away, which may help your surviving family members financially. Even if you don't earn a paycheck, you need life insurance—hiring out all the different services a stay-at-home parent provides can total tens of thousands of dollars a year.
Disability insurance is also a crucial component of your financial plan. This insurance can provide you with a monthly lump sum if you can't work due to a covered illness or injury, helping offset loss of pay.
Establish a College Savings Account
Although not all states offer benefits for contributing to a college 529 plan, many parents can receive tax credits or refunds just for funding their child's education. College 529 plans are funded with money on which you have already paid federal income tax, meaning that as long as any proceeds are spent on higher education expenses, they won't be taxed. And in the majority states, contributions are fully or partially tax deductible.
Create or Update Your Will
Having life insurance may provide your heirs with financial security. But creating or updating your will (and naming a guardian) will ensure that there is a roadmap for your child even after you're gone. Though it can be difficult to imagine leaving your family behind, having a will that clearly specifies what you'd like to happen after your death will minimize the disruption in your child's life and sidestep any potentially messy estate battles.
This blog is up to date as of May 2021 and has not been updated for changes in the law, administration or current events.