Parenting Pointers: Finances with a New Birth

England's royal couple just gave birth, and whether you are royal or a simple commoner, there are things to consider with a new addition.

The California Society ofCertified Public Accountants (CPA) is the nation’s largest professional, non-profit state association representing more than 40,000 CPAs in the area of tax, audit, accounting and consulting services such as personal finance. CPAs suggest the following steps a family can consider with the birth of a new child:

Step 1: Apply for a Social Security Number

There are good reasons to apply for a Social Security number for your child.

Your child’s Social Security number will be needed to receive ongoing health insurance coverage. Contact your health plan administrator to find out if you are required to provide one within a specific time frame to maintain coverage for your child.

A Social Security number is necessary to receive a dependent exemption and other child-related tax benefits when filing your federal income tax return. Overlooking this step could mean a higher tax bill.

A Social Security number will be needed to open a savings or investment account in your child’s name.

Step 2: Review your health insurance coverage.

Health care coverage is an important consideration for a growing family. If you’re having a baby, talk with your health plan administrator about your level of coverage during pregnancy as well as the effective date of coverage for the baby.

There are many doctor visits and vaccinations during the baby’s first year, and without coverage, these expenses add up quickly. Also ask about the extent of your coverage in the event your baby has an extended hospital stay at birth due to complications with delivery or an unexpected medical condition.

Step 3: Consider life insurance.

Since most young couples have not had enough time to accumulate a lot of money, life insurance can help provide an instant estate, thereby assuring money will be available in the case of an untimely event (such as an early death). Depending on specific needs to be met, such an instant estate could provide annual income for the surviving spouse, money to help pay the mortgage on a house, and funds to help pay for a child’s education.

Step 4: Create and manage a new budget. This new budget should reflect:

Child care costs (if necessary), medical costs, food, diapers, clothing, child care, all the other accessories and necessities. By planning ahead and adjusting your budget early, you can stay in control.

Step 5: Start saving for college education. By starting early, you can build a realistic fund through the power of compounding over many years. The earlier you start, the less you’ll have to save per month.

Step 6: Review new tax benefits: Having a child is the many tax benefits you may be eligible to claim. Some are in the form of deductions that reduce your taxable income, while others are credits that directly reduce your taxes.

Step 7: Review and prepare new legal documents. To protect your child if something happens to you consider creating a will, trust and power of attorney.

Step 8: Do additional research. The CaliforniaSociety of CPAs has created a free Web site of articles, tools and resources to help families on this and other personal finance issues.  These resources can be accessed by going to: “Dollars and Sense” on the CalCPA Website.