INDUSTRY INSIGHT
FINANCIAL STRATEGY
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for credit but only for the difference between
$3,000 and the amount in the FSA).
Another big tax perk: the $1,000 annual
child tax credit, which applies to children
under age 17. Couples filing jointly who have
one child and earn no more than $110,000
can claim the full credit. The child tax credit is
scheduled to drop to $500 in 2018.
New Baby?
Make a New
Financial
Strategy
W
hen baby makes three, budgets
sometimes fly out the door, lost
in the rush of diaper changes and
middle-of-the-night feedings. We
all know babies are not cheap and thinking
about college tuition sends that figure
significantly higher. If you haven’t adjusted
your financial strategy to accommodate the
needs of your future heirs, here are some key
considerations to keep your long-term financial
security intact:
UP THE ANTE ON LIFE INSURANCE
Once you become a parent, it is crucial that
you make adequate provisions for your child
should one or both parents die. But how
much insurance do you need? You’ll need to
consider things like your earnings and the
total amount of your household debt. It’s
also a good idea to provide enough to cover
the costs of college tuition for each child. If
only one parent works outside the home, be
sure to calculate the cost of hiring full-time
childcare, should the stay-at-home parent die
prematurely. Once you own a life insurance
policy, be sure to update your beneficiary
designations after the birth of each child.
THE PRICE OF HIGHER EDUCATION
One of the most common questions new
parents ask their financial professionals is,
“When should we start saving for college?”
And the universally agreed upon answer is:
when the child is born. When it comes to the
skyrocketing costs of higher education, time
and compound interest can definitely work
in your favor. And thanks to provisions in the
tax-law, there are a couple of attractive college
savings options such as state offered “Section
529 plans” and “Coverdell Education Savings
Accounts” that can offer significant federal and
state tax advantages.
CLAIM THOSE DEDUCTIONS
Diapers. Pre-school programs. School
supplies. Braces. Daycare. There’s no question
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PUT IT IN WRITING: THE NEED FOR A WILL
parents deserve a financial break. The good
news is, the government offers several tax breaks
for parents that are worth exploring. A common
one that many people neglect to take advantage
of is a Flexible Spending Account (FSA) offered
by many medium to large-size employers. These
employer-sponsored plans typically allow you to
sock away as much as $5,000 of pre-tax money
for child care expenses, reducing your adjusted
taxable income. Some employers even offer a
company funds match.
If you don’t work for a company that offers
an FSA, take heart. You may qualify for a child-
care tax credit if both parents are working
and your child is under age 13. The credit is
a percentage (based on your adjusted gross
income) of the amount of work-related child
and dependent care expenses you paid to a
care provider. The credit can range from 20 to
35 percent of your qualifying expenses. Keep in
mind these tax breaks are either/or – you can’t
use the same expenses for amounts disbursed
from an FSA and to take the child care credit
too (if you have two or more qualifying
individuals and $5,000 in an FSA, you can take
credit for up to $1,000 additional expenses
not covered by the FSA; with one child, if you
put less than $3,000 into the FSA, additional
expenses over the FSA amount are eligible
New parents may assume they don’t need
a will because they have minimal assets. But
asset disbursement is not the sole reason for
a will. This type of document is essential for
you to designate a guardian for your child in
the event you die before that child reaches
adulthood. An attorney can draft a will for you
in which you name an executor who would
pay your debts and distribute your assets, and
to name a guardian for your children. If you
have special concerns, such as the support of
a minor or disabled child, you may want to set
up a more complex estate plan that includes a
custodial account or a trust.
Your new bundle of joy came into the world
with nothing but a birthday suit, but the next
18 years will prove anything but expense-
free. Adequate planning now can keep that
small addition from creating big financial
headaches later.
College savings plans offered by each state may differ
significantly in features and benefits and the optimal plan
for each investor depends on his or her individual objective
and circumstances. In comparing plans, each investor
should consider each plan’s investment options, fees and
st