Financial Planning For Starting a Family

Beginning or enlarging your family is a joyous event, but adding long-term expenses also ups the amount of planning you need to do. There are several steps you can take, starting before the new arrival, to smooth the path and manage healthcare and education expenses in a tax-advantaged way.

Expanding Your Family – Financial Planning Starts Before the Arrival

Its a good idea to increase your cash reserve to accommodate unexpected expenses, and if you plan to scale back on work or take a sabbatical for a few years, it makes sense to plan this as much as a year in advance. Be careful to build a large enough cushion so that you are covering expenses while you are out and have a realistic time frame for how long it may take to get back to full-time work.

While your cash reserve is normally held in a higher-yielding savings account or money market, you may feel comfortable putting the additional savings in a short-term investment account.  However, because the time horizon is not long enough to recover fully from market drops, and the priority is to preserve capital, this account should be more conservatively invested than your retirement account.

On Arrival – Starting an Education Savings Plan

529 plans are tax-advantaged savings plans specifically designed to create an investment vehicle to pay for education expenses.  529 plans are not just for college – tax-free withdrawals may also include up to $10,000 per year in tuition expenses for K-12 schools. State tax treatment of K-12 withdrawals varies. Although contributions are not deductible at the federal level, earnings grow federal tax-free and there is no federal tax on qualified withdrawals to pay for college.  Depending on your state, you may be able to deduct contributions from your state taxes.

All 529 plans have a plan manager, usually a financial services firm, that manages the portfolio of investments. You’ll be able to create a portfolio from an offering of mutual funds and ETFs, and tailor it to your time horizon and investment preferences.  Both you and your spouse (and anyone else that wants to – it’s not limited to parents) can contribute up to $16,000 per year each (in 2022) and still fall under the gift tax exemption.

You can fund the account with a total of five years’ worth of your annual exclusion gifts, so your child’s 529 can begin with a balance of $80,000.

To get the most benefit out of these accounts – start early!  The accounts can be set up as soon as there is a little person to benefit from them, so starting before the child’s first birthday is ideal.  Your financial advisor can assist you in setting these up and selecting appropriate investments, based on the time horizon before the funds will begin to be drawn down.

The Bottom Line

Careful financial planning can ensure that each stage of your life provides you with what you need in the short term and gets you where you want to go in the long term. Working with a financial advisor you trust may help you get the most out of the financial tools available to you, as they can help you put big picture” planning in place and bring you the resources you need.


The information contained herein is intended to be used for educational purposes only and is not exhaustive.  Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return.  If applicable, historical discussions and/or opinions are not predictive of future events.  The content is presented in good faith and has been drawn from sources believed to be reliable.  The content is not intended to be legal, tax or financial advice.  Please consult a legal, tax or financial professional for information specific to your individual situation.

Reviewed by FINRA.