Smart Moves for Life's Big Events: Starting a Family

Family Finances

Smart Moves for Life's Big Events:
Starting a Family

Children are expensive. Fortunately, tax breaks can help pay the bills.

Having a baby? You're not just starting a family, you're also creating a citizen, a tax deduction, a future college student, an heir and, of course, the repository for all your hopes and dreams. To give that little bundle of potential the best shot at a secure life, start with these six steps.

Write a will. You need this document to divvy up your possessions as you see fit (within the limits of state property law) and, more important, to name a guardian for your child. Without that provision in a legally executed will, you leave it to the courts to decide who will raise your child. A lawyer will charge $300 or so to draw up a simple will; if your situation is straightforward, you can do it yourself for as little as $50 at or $69 at

See our infographic on starting a family.

Give your child an identity. We're talking about a Social Security number, the legal moniker by which the federal government, banks and other entities recognize your child's existence. You can apply for a number at the hospital when you fill out the birth-certificate paperwork or in person at a local Social Security office. If you apply in person, you must bring original or certified copies documenting your child's citizenship, age and identity, as well as proof of your identity.


Sign up for health insurance. As an expectant family, you probably already have health coverage, in which case you have a window -- typically within 30 days of your child's birth -- in which to add him or her to the policy. If you are eligible for employer coverage but haven't signed up for it, you can enroll yourself, your spouse and the baby within the first 30 days under the provision for "special enrollment." Either way, the coverage is retroactive to the date of birth. Miss that 30-day deadline and you will have to wait until the next open-enrollment period or submit to underwriting to get the baby on board. As of September 23, if you have individual coverage, you may add the baby at any time. But if you sign up more than 30 days after the baby is born, there will be a gap in coverage.

Bump up your life insurance. By some estimates it costs $220,000 to raise a kid -- and that's before paying for college. Make sure the money will be there in case you die before your child is self-sufficient. (To get a better estimate of how much you need, use the calculator at Your employer may already provide some coverage; for the rest, pick up term life insurance, which provides the most bang for the fewest bucks. A 35-year-old man with no health problems would spend about $450 a year for a 30-year policy with a $500,000 death benefit. Find quotes for your circumstances at

Take a tax break. Uncle Sam may not be attending the baby shower, but he does have a nifty gift for you: an additional personal exemption, worth $3,650 for 2010. You can claim the full exemption if your adjusted gross income is $250,200 or less (for married couples filing jointly). If your joint income is $110,000 or less, you also qualify for a $1,000 child tax credit. The credit phases out at higher incomes.

Set up a college-savings plan. To make that date with a degree possible, start the college fund now. Find out how much you need to save each month by using the calculator at Then put that monthly amount to best use by starting a 529 college-savings plan. These state-sponsored accounts let you accumulate college savings tax-free. You avoid taxes altogether if you withdraw the money for qualified education expenses, such as tuition and room and board (to find out which 529 plan is best for you, see The Top College Savings Plans).