Financial help for parents

 
There’s no doubt that children can be an expensive commodity – in fact, some estimates suggest it costs more to raise a child than buy a house! It's not necessarily a road to bankruptcy though – just follow these simple tips…

Tax credits

You’ll be able to claim your baby as a dependent on your tax return, and you’ll be eligible for the Child Tax Credit if you earn more than $11,750 but less than $110,000 (for single parents it’s $75,000. Your baby needs a social security number in order for you to claim this – you can apply for a number for your baby on the forms given you by the hospital or at your local social security office (see also your baby’s birth certificate and social security number). 

You may also qualify for the Childcare Credit, which enables you to claim back up 20-35 percent of childcare expenses if you pay someone to take care of your child while you work or study. Your caregiver will have to provide you with a social security number or taxpayer ID (if you also have an older child, preschools, afterschool care and summer camps qualify too). Bear in mind that if you’re a high earner, a flexible spending account may be a better option than the childcare tax credit – this allows employees to set aside up to $5,000 tax-free for childcare expenses.

Did you adopt your baby? If so, be sure to claim the Adoption Credit, which means you can subtract certain expenses related to the adoption precedure, such as court costs, attorney fees and travel expenses up to $11,390.

State health insurance

If you’re on a low income and your employer doesn’t provide health insurance, your child may qualify for free or low-cost insurance through your state’s insurance program, which covers babies, children and teenagers. Eligibility rules vary but in most states, uninsured children up to 18 years old whose families earn up to $34,100 a year (for a family of four) qualify. The US Department of Health and Human Services’ Insure Kids Now website (www.insurekidsnow.gov) has information and links to your state’s program.

Saving for your child

Start saving while you're pregnant – even if you put just a bit of money aside each month, this will add up and if you open an investment account in your child’s name tax laws ensure that any investment income he earns up to $850 is tax-free, with the next $850 being taxed at the lowest rate (10 percent). Do bear in mind though that if his annual investment income exceeds a certain amount he’ll need to fill out a tax return and any investment income over and above that point will be taxed at your higher rate. Investing in stocks and bonds for your child is also a handy way of saving on taxes, as he won’t have to pay tax on them until they’re redeemed or they mature.

A couple of things to bear in mind though: investments in your child’s name could potentially restrict his access to college scholarships and financial aid… and he can also cash them in once he’s 18 and do whatever he likes with the proceeds!

Setting up a college fund

College costs can be high and will only go higher so start a college fund for your baby as soon as he’s born if not sooner. There are two types of college savings plans:

• Prepaid tuition plans allow you to save for college while locking in present tuition costs, but can only be used at colleges in the state where the account is held (it may also be a requirement that you remain a resident of that state). Some plans do allow you to use the fund for out-of-state tuition but it likely won’t go so far, since most colleges charge out-of-state students higher tuition costs. However one big advantage they have is that they aren’t counted towards your child’s financial aid eligibility since they’re classed as your financial asset and not your child’s.

• 529 college savings plans These are investment accounts that grow your savings tax-free as long as any withdrawals are used to fund higher education. Plus, your contributions count as a gift so you can contribute up to $12,000 annually without being charged tax on that amount. The money can be used at any college in the country. Each state has a 529 plan and investment options within the plans tend to differ, which can put parents off, but you do usually have the option of holding a riskier portfolio when your child is a baby and gradually moving towards a more conservative one as he approaches college age, to safeguard what you’ve earned. As with a prepaid tuition plan, a 529 is your asset, not your child’s, so it won’t affect his ability to apply for financial aid. Bear in mind though that if you dip into a 529 for anything other than school, you’ll be taxed on it. Saving For College (www.savingforcollege.com) has lots of information on college savings plans.

The information in this feature is intended for educational purposes only. If you have any concerns about your health, the health of your child or the health of someone you know, please consult with a doctor or other healthcare professional.