Originally published in the Knoxville News Sentinel
After our mild winter and now sudden burst of winter, hopefully we soon will welcome spring. Spring also brings cleaning, budding flowers and trees, and last year, our first granddaughter.
While there are numerous opinions on all things parenting and grandparenting, at The Trust Company, our perspective is focused on the future and finances.
Here are a few tips for new parents:
Start a 529 plan: These educational savings plans are designed to help families set aside funds for future college expenses. Growth is tax-free when used for qualified college expenses (tuition, room and board, computers, etc.), and should your child be lucky enough for a scholarship or not need funds, the account can be used for another child.
Update your Wills: Or, get one if you don’t have one. This becomes more critical because custody of your child is essential to address. Also, remember that custody and responsibility for finances are different things and may require different people, approaches and/or plans. Each parent needs their own Will with coordinated details related to children.
Evaluate your insurance: Life insurance is a simple way to make sure your family will be financially protected in the event something happens to you. Yes, both parents likely need life insurance. The naming of beneficiaries should be coordinated between parents (remember your retirement account beneficiaries as well).
Take advantage of a dependent-care flexible spending account: As a couple filing jointly, you may allocate up to $5,000 per year in pre-tax dollars for eligible child care costs (i.e. day care, preschool or camp).
Tips for new grandparents:
Give a gift to grow with the child: Start an investment account or a 529 plan for the grandchild. It is a great way to give them a little head start when the timing is right. Make gifts a part of your overall retirement planning strategy.
How might you best help with finances: Do you want to help pay for childcare or private school? What about investment accounts, college education, extra-curricular activities (music lessons, sports, dance, etc.)? How does your budget change if there are multiple children?
Is a trust a good choice to set up for the child?: There are many options with trusts, including custodial accounts like Uniform Gifts to Minors Act and Uniform Transfers to Minors Act. These allow a high dollar amount to be contributed each year before incurring tax. However, they also are irrevocable, earnings are subject to tax and upon reaching the age of majority, the beneficiary can spend at will. Be sure to consider all the trust options based on overall family needs.
Help your children teach the grandchild about finances: Grandparents can often be more influential than they realize related to saving and spending habits. Your perspective of how costs have changed, how many more choices and distractions there are now, or even how you earned extra money, can be very relevant. Plus, since you are not the parent, it can be a less serious conversation. Educating children is a tough job. Your help will be appreciated.
Consider all of your options, then remember to start early, think long-term and be prepared to make adjustments.
Sharon Pryse, chairman and founder of The Trust Company, may be reached at firstname.lastname@example.org.