I was quoted in a Wall Street Journal article in the Sunday Journal section about what new parents need to know about money. Even if I weren’t quoted, it’s a good resource to make available to new or expectant parents:
To this list, I would add two additional things that didn’t make the cut:
1. Review your income tax withholding: each person living in the household is eligible for a personal exemption that helps reduce your taxable income. In 2012, that exemption amount is $3800. For a 2-person household in the 25% federal tax bracket, becoming a 3-person household and adding that third exemption is equal to a tax break of $950. Additional tax breaks include the child tax credit and, potentially, the dependent care credit. All of this could result in a much lower tax bill. If so, you can adjust how much tax is withheld from your paycheck each pay period.
2. Review other employee benefits: my quote in the article was specific to health insurance, but many employers offer additional benefits that can help new parents. For example, the Universityof North Carolinaat Chapel Hilloffers both Health Care and Dependent Care Flexible Spending Accounts (FSAs). Both accounts allow you to save dollars on a pre-tax basis that can then be used to reimburse you for health care or dependent care expenses, respectively. Keep in mind that you forfeit any money in an FSA that isn’t used up by the end of the year (technically, by March 31st of the following year). Contributions to either type of FSA are limited to $5000/year. Check the details of your plans to determine which expenses are eligible.
As a fee-only, independent financial planning and wealth management firm in Chapel Hill,NC, Woodward Financial Advisors is familiar with many different types of employee benefits, as well as the tax consequences of life events. We are happy to help you or a friend, family member or colleague who might have questions about these issues.