What to Consider After the Birth of a Child

By Bradley Miller

Experiencing the birth of a child is one of the most exciting times in one’s life. You feel an overwhelming sense of love and care for your child and want to do what is best for them. As you start to settle into your new normal as a parent, you may wonder what financial changes to consider now that you have a child. We have put together some financial planning thoughts to consider as you embark on this next chapter of life.

Updating Beneficiaries:

First and foremost, you will want to consider updating beneficiaries on your various bank accounts, investment accounts, and potentially life insurance policies. More than likely, you will have your spouse listed as the primary beneficiary, but you should consider listing your child as contingent beneficiary. If anything were to happen to you and your spouse, you can rest assured knowing your child would receive the balance. By naming beneficiaries, this helps to avoid probate which can be costly and time consuming. Beneficiaries allow accounts to transfer by contract directly to the beneficiary. Since the child is a minor, a guardian would be put in place until the child reaches age of majority which brings us to our next point.

Update Estate Planning Documents for Guardianship:

If you do not currently have estate planning documents (Will, Living Will, Durable Power of Attorney, Health Care Surrogate) then you need to strongly consider getting these documents put into place. With the addition of a child, your estate can grow more complex so even if you already have estate planning documents, you will likely need to get them updated given that your child is now apart of your family. While your child is a minor, one of the more important items within Estate Planning is the need for a Guardianship. Consider who you would want to have take care of your child if something were to happen to you and your spouse. Consult with that person to ensure they would be on board with raising your child if you and your spouse were to pass away. Also consider creating a Revocable Trust which would be a great way to title your real estate or contingent beneficiaries while your children are minors.

Considering Life Insurance:

Previously, you and your spouse may have had life insurance in place to cover any outstanding debts (such as a mortgage) or take care of the other spouse if one of you were to pass away. Now that you have welcomed a child into your lives, you should consider if additional term life insurance may be needed. Each family will be different, and you should talk to your spouse about the lifestyle that you envision for your child if one of you were to pass away. Consider the costs of raising the child and if you would want to cover education costs into college. These factors and more can help determine an appropriate amount of coverage to obtain.

529 College Savings Plan:

It is never to early to start savings towards your child’s future. Putting money away per month into a 529 plan can allow for tax-free growth for your child and help to cover education costs (and more) throughout their lifetime. Even putting $50 a month into a 529 for the next 18 years, with 5% growth allows it to grow to approximately $17,250. $100 per month would result in approximately $34,500. Recently, through the SECURE Act 2.0, you will be allowed to move money from a 529 into a Roth IRA for the child if the 529 has been opened for 15 years. We discussed this in our prior newsletter. This provides even more flexibility and if the money does not get used towards the child’s education, then it can be put towards their retirement.