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Financial tips for new parents

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POSTED: June 9, 2007 5:02 a.m.
If you’ve just had a child, you are no doubt excited and happy, though you could probably use more sleep. And if you’re like most new parents, you have big dreams for your little one. But if you’re going to help make those dreams come true, you’re going to need to make the right financial moves. And the best time to start is now.
To begin, you’ll want to evaluate your life insurance. When you first started working and were only looking after yourself, you probably didn’t need a whole lot of insurance. After you’re married, though, you’ll want enough to at least help your spouse pay off the mortgage. And once you have children, you’ll add a new dimension to your insurance needs, because you’ll want to have enough to educate your kids, and perhaps set them up in adult life.
How much insurance does that take? There’s no one “right” answer. You will have to consider a variety of variables, such as your spouse’s income, how many children you have, what type of college you’d like them to attend and how much you’d like to give them to begin their working lives.
Beyond insurance, what other financial moves should you make upon the addition of a child? Consider setting up a college fund. College has become expensive in recent years. In fact, for the 2006-07 school year, it costs, on average, $16,357 for students attending four-year public colleges and universities, according to the College Board. If college costs were to rise five percent every year, today’s newborns can expect to pay about $162,000 for four years at a public school. In short, you’ve got quite an incentive to save for college, early and often.
In building a college fund, the earlier you start the better. Fortunately, you have attractive vehicles available, such as a Section 529 plan or a Coverdell Education Savings Account. Both offer tax advantages to save for college.
In addition to a college fund, you may want to open a separate investment account for your child. You can set up a custodial account as established by either the Uniform Gift to Minors Act or the Uniform Transfers to Minors Act. In an UGMA or UTMA account, the first $850 of annual investment income is tax-free to a child under 14, and the next $850 is taxed at the child’s rate. Any amount over $1,700 will be taxed at your rate. Keep in mind, though, that once you make a gift to your child, it is “irrevocable” which means you no longer have any legal access to, or authority over, the funds.
When you have new children, you have a lot to think about. Just make sure one of the things you’re thinking about is their financial security.

Cardella is a financial consultant with Edward Jones in Hinesville.
 

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