Having a second child is a big decision, one that requires someone to ask as many, or more, questions as the first. How will a second baby change the rhythm of the household? How will our first child adjust to having a sibling? Are we ready to go back to 3 a.m feedings so soon? One of the biggest concerns weighing on parent who are considering re-upping for baby duty are, of course, the financial burdens, as a second baby means than just more mouths to feed. It means more savings accounts, additional health insurance, and much more. There are many questions to ask but, to give a sense if which are most pressing, we spoke with Alex Sutherland, CFP and President and Investment Advisor for the LifePlan Group, to find out what some of the biggest dollars-and-cents questions hanging over the heads of prospective two-time parents.
1. What will be the out of pocket costs for the birth of our child?
Children are expensive, and, with one child already under your roof, chances are that your finances are stretched even thinner than they were the first time around. As such, you’re going to want to consider the cost of everything much more carefully. That starts in the delivery room. Additionally, the larger your family becomes, the higher your premiums will go. “Check with your insurance provider so you are aware of the total cost for the birth of your child,” says Sutherland. “It is better to anticipate this cost rather than be surprised after the fact.”
2. Which financial account should we use to pay bills?
As you begin to develop a clearer picture of the costs you’ll incur with a second child, you’ll want to start being wise when it comes to figuring out where the money will actually come from. Sutherland recommends opening a health savings account (HSA), as any medical bills paid from that account are tax free. “However,” says Sutherland, “it may be beneficial to use another financial account as well. It is important to speak with a financial professional to help you with this to best maximize tax deductions.”
3. How will a second child affect taxes?
Until recently, parents enjoyed exemptions for each child, providing they were born before December 31st of that tax year. However the Tax Cuts and Jobs Act has made those exemptions a thing of the past. That said, there still might be options for you and your spouse. A Child Care Credit, for example, can get you 20 to 35 percent of up to $3,000 of child care. “Make sure to check with your tax or financial professional to make sure you are getting all the tax deductions you are entitled to for having a child,” says Sutherland.
4. Do I have a dependent care flexible spending account through work?
It would be a smart idea to find out whether or not your employer or your spouse’s employer offers a dependent care flexible spending account. This is a pre-tax account that can be used to pay for eligible services like daycare, summer camp and after school programs. “Once again,” says Sutherland, “check with your human resources department and tax professional to see if you qualify.”
5. Should we change our health care coverage?
A life-changing event like having a second child is grounds for changing your health insurance plan outside of the open enrollment period. With most plans, you have 30 days from the birth of your child to add the baby to your police. “It is important to look through the options now that you have a second child to see if it makes sense to change your plan,” says Sutherland.
6. How can we incorporate child care costs into our financial plan? `
Since you’re on your second child, you know that childcare is expensive. But with two mouths to feed, those expenses are about to increase, and you’re going to need to plan accordingly. Be judicious about your spending and resist the desire to do things like buy a bigger house or car. “Think through how child care costs will be paid with your financial professional,” says Sutherland, “so they incorporate it into your plan and make any adjustments as necessary.”
7. Should we start thinking about education costs?
The answer is yes! It’s never too early. It might feel as though college is a long way off when you’re in the throes of new babyhood, but the time is limited and getting a head start on saving can make things easier down the road. “With the benefit of compound interest, starting a 529 plan early can be very beneficial!” says Sutherland. “Even putting a little bit away early can really pay off down the road.”
8. How will this affect our retirement?
Given the expense of raising children, the amount you’re able to save for your retirement could be compromised. In fact, some advisors recommend saving for retirement first and education second. “Make sure to go over your financial plan with your financial advisor so they can let you know how it might affect your retirement goals,” says Sutherland. “It is always hard to balance various goals such as costs for a child and retirement, so it is important to have a plan and make sure you take a balanced approach.”