Adopting a child is a wonderful experience that will surely change your life for the better. But it requires a great deal of planning as well. Many soon-to-be parents do a lot of emotional planning and preparation of the house and family, but they may not plan for the financial changes as well as they could.
To help you on your adoption journey, here are a few ways to become financial planners as you prepare to add to your family.
Adoption itself is often expensive, and this is the first expense new parents will have to deal with. Average adoptions in the U.S. can cost up to $28,000—and even more in special circumstances—so start squirreling away funds as soon as possible to make this less stressful on your finances. You may find it beneficial to start an account specifically for adoption expenses so you can keep your eye on the ball. Your financial planner can help.
The good news is that many aspects of increasing family size will help on your taxes. For instance, there is an adoption tax credit available to most families that will significantly reduce your tax liability. You may become eligible for the Earned Income Tax Credit, Child and Dependent Care Credit, and Child Tax Credit (if the child is under 17).
To find out how your new family member will change your taxes—for better or for worse—work with a qualified accountant who can help you do projections.
You'll need insurance to cover the little one in your family, and this may or may not add to your insurance costs. If you and your spouse already carry family coverage, it's unlikely to add much except an additional deductible. If you have to change to family coverage, this expense could be much larger.
Talk with your employer or insurance agent about the best options for new families. You may find that bundling the family onto one insurance plan is best, but you may also discover less expensive individual options as well.
You want your new son or daughter to live a good and healthy future, so you're probably thinking about saving for their future. Unfortunately, if you adopt an older child, you may have fewer years to plan for things like college expenses.
There are a few good ways to save for college in a hurry: contributing up to $2,000 annually to a Coverdell account, opening a 529 account, and even gifting up to $15,000 tax-free each year. Talk with your financial planner about the best methods for your circumstances.
While financial planning for your new addition isn't as much fun as decorating the nursery or picking out good preschools, it can make a difference for the entire family and for many years to come.