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Financial Planning for Expectant Parents

While 9 months can seem like an eternity for couples waiting for their baby to arrive, getting prepared both emotionally and financially may seem more like a race against the clock.

There are many steps you can take to prepare yourselves for life after baby. By learning about your options now, you will become more comfortable with the decisions you ultimately make. Planning ahead will also help you secure a healthy financial future for your child and plan for their future well-being.

Understanding Healthcare Policies & Benefits
Over the next several months, you should become more familiar with your health insurance plan and coverage, and also that of your spouse if you're insured separately. Assess which plan offers the best coverage for your situation and make sure that your doctors accept the plan you select, as well as the pediatrician you select for your child; while currently it might make the most financial sense for you and your spouse to remain on separate plans, consider the costs and benefits of electing for family coverage, once the baby arrives.

Check with your insurance provider as to what expenses for prenatal care, delivery, and postnatal care will be covered under your plan and which you may have to pay for out-of-pocket. Remember to ask about co-pays, since you will be having appointments quite regularly throughout your pregnancy and your baby will have several visits in the first 12 months. You will also need to learn about your provider's procedure for adding a child to your policy; some may require paperwork in advance of the due date, but others may provide a 30-day grace period from the date of birth.

Once you learn more about your healthcare coverage and anticipated medical expenses, find out whether your insurance policy includes either a Flexible Spending Account (FSA) or a Health Savings Account (HSA). These accounts allow employees to make pre-tax contributions to be used for qualifying medical expenses, including co-pays, prescriptions, and over-the-counter medications. Be sure to speak with your Human Resources (HR) representative to understand the benefits and limitations of FSA and HSA plans. Click here for an overview.

Assessing Childcare Options You Can Afford
Providing childcare for your baby may be one of the highest costs new parents incur-and it is particularly expensive for newborns and infants. You'll want to select childcare that fits your budget, is convenient to your home or workplace (or that of your spouse), and that you are comfortable with. Depending on your choice of childcare, you may also be eligible to receive tax benefits. Childcare costs can be paid with pre-tax dollars using an FSA plan, which can provide considerable savings. For instance, during the 2010 tax year, parents can make up to $5,000 in contributions for dependent-care expenses. Learn more about contributing to an FSA for dependent care and the Child Care Tax Credit.

When deciding between a daycare, a nanny or nanny-share with another family, childcare provided by a friend or relative, or taking care of your child yourself, consider the weekly expenses-in the case of staying at home, consider the difference between your current weekly salary and the expense for childcare. As you consider your options, don't let application, deposit, or waiting-list fees for daycares catch you by surprise.

Preparing for Leave
If you plan to return to work following the birth of your baby, make sure you become familiar with the benefits you are entitled to, and those you may not be eligible for. Speak with your HR representative to discuss your options, and make sure everything is in writing so there are no misunderstandings once the baby is born. Discuss your expected date of return, your work schedule (if different than it is currently), and compensation during your absence; for example, how your paycheck will be affected.

Depending on your employer, you may receive specific benefits for maternity, whether paid or unpaid. Oftentimes employers may cover six weeks of paid time off, giving you the option of taking another six unpaid, while some lucky moms may earn 12 weeks of paid maternity leave. You'll also want to check out your short-term disability (STD) coverage, if applicable. Under some policies, childbirth qualifies for STD benefits, which pay a percentage of your salary for a certain time period. All plans vary, so be sure to get the facts on your plan. To learn more about the basics of maternity leave, check out this informative web page.

The Family Medical Leave Act (FMLA) was designed to allow employees up to 12 weeks of leave each year (while maintaining job security and benefits) for qualifying family and medical responsibilities, including the birth and care of a newborn baby. However, certain limitations exist; for instance, if your employer has fewer than 50 employees, they are not required to comply with the FMLA. Also, some policies may require that you exhaust all accrued vacation days or personal time off before you are allowed to use FMLA time. For more details about FMLA and its restrictions, check out this U.S. Department of Labor page.

Planning for the Future
Now that you've assessed the financial implications of healthcare, childcare, and taking time off from work, it's time to think about your long-term plans. If you haven't already, start to put together a working budget so you can assess what the monthly impact of having and raising a child will be. Even if you don't think there's any money left over for savings, consider establishing a 529 plan for your child, like a pre-paid tuition or college savings plan. Similar to retirement plans, these accounts offer tax-advantaged savings. Even if you deposit just a few dollars a month, you can set up an automatic monthly contribution, in addition to contributing any money received as gifts. There are many plans to choose from, which you can read about in this introduction to 529 plans from the government website. Take note that investing in your own state's 529 plans may be the best way to optimize tax breaks.

In addition to planning for your child's continuing education, it's even more important to plan for the unexpected, such as the untimely death of you or your spouse. Speak with a lawyer specializing in estate planning to draw up a will that addresses your financial assets and assigns guardianship of your children. Many do-it-yourself options also exist for creating wills. If you choose this route, make sure to purchase up-to-date documents specific to your state and get all necessary signatures and witnesses to ensure that your will is legally-binding and complies with local and state regulations. It's also a good idea for you and your spouse to both update beneficiaries on accounts such as 401(k)s and IRAs once your baby arrives.

If you are not yet covered by life insurance, now is an ideal time to begin to protect your family's financial stability. You should also consider extending your coverage to include disability insurance in case of a debilitating accident or condition that leaves you disabled and unable to continue working or taking care of your child.

While preparing for your child's arrival is full of decisions, planning ahead is worth your while. Once you've completed your financial planning to-do list, you'll have a due date to look forward to, not dread. And for once, there are no penalties for going past-due.

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