Family Easter

7 Smart Financial Moves for New (and Experienced) Parents

My wife and I had our first child in May. The moment they let us take our beautiful daughter home from the hospital without a nurse to guide us was when we realized the newfound responsibility that a child brings!

For the past nine years working as an advisor, I have been helping others plan for many of the important events in their lives, including marriage, children, retirement and leaving a legacy for their family. As I enter a new stage myself, I thought I would share some of the financial steps I took to help secure the financial future of my family.

Create a will and contingent trust. This is one of the most important first steps. Choosing a guardian for your children helps make sure they are raised by someone who you think will share the same values. A contingent trust helps ensure that the money your child receives from all of your hard work and planning is distributed according to your wishes instead of giving them complete control over everything the minute they turn 18.

Update beneficiary forms. Make sure you double check all of your retirement plans and insurance policies so something doesn’t fall through the cracks. Many accounts with beneficiary designations never pass through your will, so it is important that these are also updated.

Begin saving for college. There are various options available. You should consult a tax advisor and financial advisor to help determine what is best suited for your family’s financial situation. I opened a 529 plan for our daughter. The money in this plan can be used at almost any accredited higher education institute in the world.

Purchase life insurance. My wife and I both increased the amount of life insurance we have. We did a combination of term and permanent insurance to make sure we have the total amount we need at a price we can afford.

Buy disability insurance. When you are young, your future earning potential is your biggest asset. Get as much disability insurance coverage as you can to comfortably cover your income if you get sick or injured and can’t work. A disability lasting longer than three months is much more common than you think.

Consider a small whole life insurance policy. I purchased a policy on my daughter. This accumulates tax-free savings and has a guaranteed purchase option, which gives her the option to purchase additional insurance when she is an adult, regardless of her health at that time.

Look into a dependent care FSA. Many companies have these plans in place and they are a way to pay for some of your childcare costs with tax-free money. It is a “use it or lose it” design, so you want to make sure you will be spending at least the amount you elect to have withheld.

My aim as an advisor is to help families preserve wealth through multiple generations. These are some of the first steps you can take when you have a child to make sure you are on the right track to do that.

This article is intended for informational purposes only and should not be construed as a recommendation to purchase or sell any security or securities product. Securities offered through Ceros Financial Services, (Not affiliated with Resource 1, Inc.).1445 Research Boulevard, Suite 530, Rockville, MD 20850. (866) 842-3356 Member FINRA/SIPC 
Prior to purchasing a 529 plan, you should consider, whether your state or your designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program.
    1. In Indiana, 529 plans are not taxed if used for the intended purpose. They have some deductibility on your Indiana state income tax.

    2. 529 Plans are great for educational purposes, but if your daughter/son do not intend to go to college, or if they want to start their own business, buy a car to go to work, unless it is “qualified” you will be taxed/ given a penalty for touching that money. Therefore, the benefits: it will grow tax free and can be used for college. A con is that you can’t use that money for anything other than educational expenses… so sometimes you want to look into a dividend paying whole life insurance that allows you to access the cash without any penalty and restrictions.

    1. Some retirement plans may let you take money as a “loan” without penalties. However, most will charge some sort of penalty because they truly don’t want people dipping into retirement funds. Two good options are mentioned in this article- 529 plan and a whole life insurance policy. 529 plan is is great if your child does decide to go to college. If not, then the money becomes theirs, and will be taxed/ penalized if not used for education. A whole life insurance policy has a “cash value” aspect at your disposal. You may use that money for whatever you like.

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