From the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®


(November 30, 2005) — There’s no getting around it — having a baby is expensive. But a new addition to your family, like any other major change in your life, is easier when you plan ahead. Here are some of the financial planning steps the Virginia Society of CPAs suggests you take when you have a new family member:

Revise Your Budget

The budget that worked well for you and your partner will need to be revised to accommodate your new baby. A budget is especially important if one parent plans to stop working. If this is the case, it’s a good idea to practice living on one salary for the months leading up to the birth to see if you can manage financially.

Your new budget should incorporate the additional expenses you’ll face. Start with ongoing expenses such as food, diapers, baby clothes and health care. Then add in one-time expenses like a crib, car seat, baby monitor and stroller.

If you didn’t have a budget before, be sure to create one before the baby is born — you won’t have time after.

Apply for a Social Security Number

You will need a Social Security Number (SSN) for your child in order to take advantage of the tax benefits available to parents of dependent children. A Social Security Number is also required to open a bank or investment account for your child.

You can apply when the baby is born or you can wait until later. The easiest way to apply for your baby's Social Security Number is at the hospital. When you supply the information for your baby's birth certificate, tell the hospital representative that you would like to apply for a Social Security Number for your baby. You will need to provide both parents' Social Security Numbers. The hospital will send the required information to the Social Security Administration and your baby’s card will be sent to you in the mail.

You can claim an exemption on your tax return for your child. For 2005, the dependent exemption is $3,200. You may also qualify for a child tax credit of up to $1,000. Both the dependent exemption and the child tax credit start to phase out when your income exceeds certain levels. If you return to work and require childcare, you may be eligible for the dependent care tax credit as well.

Review Your Insurance Coverage

As your life changes, so do your insurance needs. That’s why it’s important for new parents to reevaluate their life, disability and health insurance coverage. Adequate life insurance helps to ensure that your child and your spouse will be provided for in the event of your untimely death. With life insurance, you can select the amount of coverage that will help your family meet living expenses, pay the mortgage and even provide a college fund for your children.

Since young parents are more likely to suffer a disability than death, it’s important that your income is protected, especially if just one parent is working. Disability insurance replaces a portion of your income so you can continue meeting your financial obligations until you are well again.

On most health care policies, a new baby is a "qualifying event" which means you may add your new baby to your policy without waiting for the annual open enrollment period.

Revise Your W-4

Once the baby is born, you may want to contact your employer to update your W-4, Employee’s Withholding Certificate to reflect an additional dependent. This means more money in your paycheck, which is sure to come in handy.

Name a Guardian In Your Will

If you don’t have a will, now is the time to have one prepared. A will gives you the opportunity to name a guardian to care for your child in the event you and your spouse die unexpectedly. Without one, the state could determine who raises your child.

Open a Childcare Flexible Spending Account

Many employers offer dependent care flexible spending accounts where you can set aside money from each paycheck and use it to pay for childcare. Because this money is deducted before taxes, you don't pay income tax on it, making it a smart way to pay for childcare. Different plans have different rules, so make sure the plan is right for your situation. You can either participate in a dependent care spending account or receive IRS childcare tax credits, but not both. You will need to determine which tax-saving option is most beneficial for your family.

Consult with a CPA [and a CERTIFIED FINANCIAL PLANNER™ professional]

Having a baby is a perfect time to take a look at your family financial plan. A CPA [and a CERTIFIED FINANCIAL PLANNER™ professional] can help you plan for a future of financial stability and security and guide you through the tax breaks available to parents.


The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at


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