The arrival of a newborn represents a monumental milestone for all parties. Bringing a child into this world is a game-changing event that can permanently alter your outlook on life. The excitement, however, may also be accompanied by stress and exhaustion, as it is difficult (if not impossible) to fully prepare for the new roles and responsibilities brought on by parenthood. What’s more, sleep may be hard to come by for the first few months following the arrival of your new addition. Regardless of the specifics with your situation, the birth of a child is an extremely emotional time, and this makes it possible for new parents to inadvertently neglect the practical aspects. To avoid this fate, consider the steps below to protect your family’s finances.
Start with Social Security
Assuming the birth takes place in a hospital, be sure to request a birth registration form (most hospital staff members distribute them to maternity patients). Check the box on the form to request a social security number for your child, and be aware that you must supply the parents’ social security numbers as well. If the registration form is not available at the time of birth, contact your local Social Security office to get the process started. The same is true if you’re adopting a child.
Upon receipt of the social security number, you’ll be on solid ground for claiming tax benefits such as an additional dependency exemption or perhaps the child tax credit. You will also be able to open savings and investment accounts in the child’s name.
Notify Your Employer
Another important step is locking in health insurance for your newborn. If you’re covered by an employer plan, be sure to inform the employer of your new addition (the sooner, the better in most cases). When both parents have employer plans, determine which one will be better, going forward. If neither parent has a health plan at work, notify your health insurance company directly. There may be a 30-day window, after the birth, in which to enroll the child and avoid possible problems.
Regardless of your health insurance situation, you should consider adjusting your “allowances” by submitting IRS Form W-4 to your employer. This document ultimately determines the amount of income tax withheld from your paycheck throughout the year. On your W-4, more “allowances” equates to less tax withheld. As such, you might add one allowance to your W-4 after the birth of a child. Adding this allowance will increase your take-home pay during the year. On the “flip-side”, your income tax refund will be smaller (or your tax liability will be larger if you normally owe tax) upon filing your return at year-end.
Update Your Estate Plan
Whether you just had your first child or have added a sibling to the mix, the new addition should serve as a reminder to review your estate plan. For example, do you and your significant other have a will or durable power of attorney in place? If so, you should inquiry as to whether or not any changes are required. If not, I recommend considering them since you have descendants that now depend on you for their livelihood.