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Newborn on the way, what steps to take now (financially)

8,328 Views | 55 Replies | Last: 3 yr ago by Bluecat_Aggie94
drewbie08
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In reply to Rice and Fries • 3:35p, 11/20/19
AG
Congrats to you and your wife! I wish you the best. My first reaction is to relax a bit until you get closer to the due date. I didnt read through all the replies, but my understanding is you cant even open a 529 account until the baby is born and has a social security number.

I dont want to be negative. But I reiterate to take it slow and be there for your wife. That's the best advice I can give you. Pregnancy is a tough journey. I've had a pretty awful experience of doing a lot of the things you said, only to have it end in sadness.

Adding to my post. Enjoy everything you can as it happens! But there is no need to get that far ahead of yourself at this point in the journey.
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JTA1029
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11:01a, 11/21/19
AG
Max out your FSA and use that for delivery hospital bills. We had our first this year and I forgot to use my fsa card. Now its november and I'm scrambling to try to spend it all up.
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fourth deck
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In reply to drewbie08 • 2:13p, 11/21/19
AG
drewbie08 said:
Congrats to you and your wife! I wish you the best. My first reaction is to relax a bit until you get closer to the due date. I didnt read through all the replies, but my understanding is you cant even open a 529 account until the baby is born and has a social security number.

I dont want to be negative. But I reiterate to take it slow and be there for your wife. That's the best advice I can give you. Pregnancy is a tough journey. I've had a pretty awful experience of doing a lot of the things you said, only to have it end in sadness.

Adding to my post. Enjoy everything you can as it happens! But there is no need to get that far ahead of yourself at this point in the journey.
You can open a 529 with yourself as the beneficiary at any time and change it to your child once their SS# arrives. 529's can also be used to pay $10k/year in K-12 private school tuition.
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BrokeAssAggie
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4:04p, 11/21/19
Enjoy the second trimester. Some of the best sex of my life!
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GentrysMillTX10
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7:52p, 11/26/19
AG
First step is done - ask TexAgs like you've done.

My wife is 14 weeks pregnant with our first born. We had already established wills, HIPAA releases, etc within 6 months of being married. Signed up for life insurance last week. 30 yr term, small amount on her with a child rider and larger amount on me. We had our third OB/GYN visit today. We're on a payment plan to pay his his services, comes out to 8 payments of $187. Working on extra padding to our savings account at the moment. We have already secured childcare with my MIL. She's a retired principal and can't wait be a stay at home grandma. Our pregnancy will be announced at Thanksgiving to the masses....and all of the above is already done.

Through all of this...I shopped and switched insurance for home & auto and added life with the same agency. Partnered with a class of '10 Ag to be my long term insurance guy. Saved $700 on homeowners insurance too.

Also started a post here about neighborhood advice for moving closer to MIL. We had a tremendous response and have received emails from 2 residents within the neighborhood we're considering...all thanks to TexAgs.
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gigemhilo
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In reply to ABATTBQ11 • 10:01a, 11/27/19
AG
ABATTBQ11 said:
Sleep.

My hang up on the 529 plan is that it comes with a withdrawal penalty plus taxes if not used on approved expenses. Approved expenses beyond tuition and fees, like room and board, come with strings. There's also no telling what the tuition and fees will look like in 20 years.

1. I like to think of if this way.... we started 529s after each of ours were born. My oldest is 15. we contribute monthly, and grandparents have given to them here and there. They have an Avg anual return of 7.7%. That means, for my oldest anyway, that the reinvested earnings have doubled and almost tripled the original investment. And we are continuing to add to it.

So when we cash this out to pay for tuition, I will giving 100% of the earnings to the university instead of the 70% of earnings going to Uncle Sam.

2. As a tax preparer, I see very few 529 holders being penalized for non-educational withdrawals. And when I do, its because they either didn't go to school or they didn't use it all.

529s are just a no-brainer to include in your saving plan.
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RangerRick9211
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In reply to P.H. Dexippus • 9:08a, 12/9/19
AG
Mr. AGSPRT04 said:
RangerRick9211 said:
Then stashing every drop you're allowed to in a 529 makes sense, regardless of how much you'll actually spend on education. You just have to compare the value of tax free compounding growth against the penalty and deferred income tax.
Since 529 contributions are post-tax money, and the advantage of contributing is tax-free distributions for qualified expenses, then how does paying income taxes + 10% penalty leave someone better off than investing outside a 529?
It depends. Mainly on income, tax and estate scenarios. And of course only after you've filled all other tax advantage space.

First, unqualified penalty and income tax is levied on earnings only - however, at pro-rata. You can super seed per gift tax law, at $75k/parent, in year 1 of your kid's life. Because you can change beneficiaries, they become powerful estate vehicles being excluded from your taxable estate.

Because there's no tax drag, there is a time horizon where the same investment in a 529 with taxes and penalties will outperform the same investment in taxable. Especially true if you're planning to be in a lower income bracket during retirement. Bogleheads has a good thread with various assumptions on returns, tax brackets, gains tax, etc. I'll try and find it.
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Gilligan
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4:50p, 12/10/19
AG
Congratulations!

1 kid = double coverage
2 kids = Man to Man
3 kids = Zone
4+ kids = you really don't give a zhit anymore...
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Gilligan
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9:54p, 12/10/19
AG
There's also U Promise

You can link this to an account for the kids. I think I made about $200 - $300 over the years.

I have a friend in sales and he eats out every day with customers. He said he made tens of thousands of dollars.

A ridiculous number.

check it out.
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Jason Ag
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In reply to CS78 • 7:07a, 12/14/19
AG
CS78 said:
Financially, about 2x what you think you might need in term life. Worry about the rest later.


I wish someone had given me this advice when I had kids, I honestly never even thought about it.
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Rice and Fries
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In reply to jaggiemaggie • 3:37p, 7/14/20
jaggiemaggie said:
Congrats! Sleep and enjoy the time together having a social life. Once you have a kid, those are the first 2 things to go away.
This comment from November cuts deep.
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Rice and Fries
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4:02p, 7/14/20
Wife is now 30 weeks pregnant. We have most of our debt paid off, I finished the nursery and everything is pretty much set up for the little one.

Looking forward to planning:

- Regarding 529's, I saw Dave Ramsey where he was ripping on them pretty hard. He recommended an ESA, which we can do this year, but I am worried about the future as we are just below the $220K income limit on it. Does that mean we wont be able to contribute for the years when we make too much? What are the other alternatives?

- We need a bigger vehicle, but don't want to huge monthly payments that come along with it. Does anyone have any good recommendations for cars to look at? Looking at Mini-Vans :/
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fourth deck
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In reply to Rice and Fries • 9:33p, 7/14/20
AG
Rice and Fries said:
Wife is now 30 weeks pregnant. We have most of our debt paid off, I finished the nursery and everything is pretty much set up for the little one.

Looking forward to planning:

- Regarding 529's, I saw Dave Ramsey where he was ripping on them pretty hard. He recommended an ESA, which we can do this year, but I am worried about the future as we are just below the $220K income limit on it. Does that mean we wont be able to contribute for the years when we make too much? What are the other alternatives?

- We need a bigger vehicle, but don't want to huge monthly payments that come along with it. Does anyone have any good recommendations for cars to look at? Looking at Mini-Vans :/


Why exactly was he ripping on 529's? Coverdell ESA's are obsolete now that you can use 529 funds for K-12.

I don't get the minivan hate. They've come a long way from the 90's uggos and are practical as hell.
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Chipotlemonger
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12:37a, 7/15/20
AG
First off what is to hate about 529s?

Second off, my friends and I ended up renting a minivan on our trip to SC for the game in 2014. I came away actually liking the thing. No need to hate on modern minivans, it's a great utility vehicle.
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Rice and Fries
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In reply to fourth deck • 7:06a, 7/15/20
Basically was saying that using 529s was prepaying college tuition and the funds were always poorly mismanaged and not hitting investment returns.

https://www.daveramsey.com/askdave/faith/back-away-from-state-529s

I'd prefer to have control over the investments but don't really know much about them. I'm really just worried about income limits after wife finishes Nurse Practioner school and gets a higher salary.
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fourth deck
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In reply to Rice and Fries • 9:35a, 7/15/20
AG
Rice and Fries said:
Basically was saying that using 529s was prepaying college tuition and the funds were always poorly mismanaged and not hitting investment returns.

https://www.daveramsey.com/askdave/faith/back-away-from-state-529s

I'd prefer to have control over the investments but don't really know much about them. I'm really just worried about income limits after wife finishes Nurse Practioner school and gets a higher salary.
At the beginning of that answer he confuses 529's with prepaid tuition plans. Then later on he gets it correct:

Quote:
That's the kind of 529 where you can choose the investments inside the 529. That grows tax-free when used for college, and you can put thousands of dollarsdepending on the situationin it each year, and you choose the plan. You choose the mutual fund. You want the kind of 529 where you control the options.

There are prepaid tution plans that I would stay away from, but just about all the different state 529 plans now are what he describes at the end. And again, Coverdell ESA's are obsolete now that 529 funds can be used for K-12. And $2,000/year max in an ESA, Lol that's nothing!

You can change the beneficiary on a 529 in case funds don't get used by one child. There are even rules for taking funds out penalty-free if a child gets a scholarship. Morningstar has been keeping track of the 529 plans for years and they have been getting consistently better by focusing on fees:

https://www.morningstar.com/articles/950079/rating-the-top-529-college-savings-plans

For folks who live in a state with no 529 tax credit like Texas, Utah seems to be a consensus choice for a good 529 plan. As a SC resident, I get a considerable state income tax credit for using SC's 529 plan.
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10andBOUNCE
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9:44a, 7/15/20
AG
Life Insurance for sure and I'd make that priority #1
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Rice and Fries
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In reply to fourth deck • 11:49a, 7/15/20
Thank you sir!
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10andBOUNCE
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11:49a, 7/16/20
AG
Here are the four investment accounts we have for our son. I think the biggest thing here is the time-value of money. Starting things early on even at minimal amounts have lots of time to grow!

1. 529 - contributed a decent amount when he was first born as well as some gifts from the grandparents; Our recurring contribution is pretty nominal right now - just bigger priorities at the moment. Our intent is not to fully fund an education. Who knows what secondary education even looks like 10-20 years from now.
2. Roth IRA - our son has done some small acting/model jobs and I put a small amount in a custodial Roth for him. Goal here is to just let a small amount grow for 50+ years. No reason not to.
3. UTMA - converted some of his savings account; intent here would be to have some savings when he's starting out his life for a vehicle, etc. Again, didn't put much in but letting it sit for 15 years will help.
4. Additional Brokerage (in our name) that we have called "Proverbs 13:22". This is kind of a fun one for us as parents. This verse says, "A good man leaves an inheritance to his children's children, but the sinner's wealth is laid up for the righteous." So what we do is save $13.22 every month in this brokerage account and intent for this to be a gift down the road for our son's kids one day.

We just try to make it fun and meaningful, whatever we're doing.
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K_P
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1:38p, 7/20/20
AG
congrats to op!

One question I had reading this: thoughts on TX guaranteed tuition plan? I am currently roughly splitting my savings dollars between a stock market 529 and the TX tuition plan.

My kids are both less than 2, so making the wrong decision has a bigger dollar penalty in my mind.
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A New Hope
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1:48p, 7/20/20
One of the best things I ever did was fund my kids 529 as soon as she joined our family. You can fund 5 years at one time. Between my wife and I we maxed it out immediately and then continued contributing until we hit the ceiling for contributions. I'll never have to worry about my kids education should I die before she gets to college. Plus with markets performing so well, I've seen some nice compounded gains over the last decade. Enjoy the ride. It's a great one.
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Bluecat_Aggie94
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12:29p, 7/24/20
AG
FYI I didn't start 529 plans on any of my several children until the oldest was in her early teens.

We are going to be OK.

Do I wish I had started it when she was born? Sure do. Would have made things a lot more comfortable now, but you know what? Buying diapers, making my mortgage, groceries.... income at the time just didn't make it feasible.

If you can, do it. If you can't, don't panic.

For me, faith is a big part of this... I believe God gave us kids, he'll give us the means to take care of their needs. So far it has worked out that way.
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