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New parents need new financial plans

Charlie Wick and Tina DeWitt
Vail, CO, Colorado

If you’ve just had a child, you are certainly excited and happy, though you could probably use a little more sleep.

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 out in the working world 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 insurance to at least help your spouse pay off your mortgage. And once you have children, you’ll add a new dimension to your life insurance needs, because you’ll want to have enough coverage to educate your kids, and perhaps set them up in adult life.

How much insurance does that take? There’s no one answer. You will have to consider variables such as your spouse’s income, how many children you have, what type of college -public or private – 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 quite expensive in recent years. In fact, for the 2006-2007 school year, it costs, on average, $16,357 for students attending four-year public colleges and universities. If college costs rise 5 percent every year, today’s newborns can expect to pay about $162,000 for four years at a public school.

In building a college fund, the earlier you start saving, the better. Fortunately, you have some attractive programs available, such as a Section 529 plan or a Coverdell Education Savings Account, both of which can offer tax-advantaged ways to save for college. To determine if these plans are suitable for your needs, consult with your financial and tax advisors.

In addition to a college fund, you may want to open a separate investment account for your new 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 either 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. Before proceeding with a either of these accounts, consult with your tax advisor.

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.

Tina DeWitt and Charlie Wick are financial advisers with Edward Jones. They can be reached in Edwards at 926-1728 and in Eagle at 328-4959.


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