Key Aspects of Financial Planning for New Parents

For most new parents, focusing on the big picture is not easy. You're sleep-deprived, juggling naps and feeding schedules, and excited about the youngest blessing in your life. However, talk to any parent and nearly all will comment on how quickly time passes. The time between kindergarten graduation and high school graduation is difficult to slow down. This week, our focus examines key areas of financial planning for new parents. Don't wait to get started!

Prioritize Life & Disability Insurance

While adequate health insurance is crucial, you'll also want to prioritize life and disability insurance as well.

Life insurance can help protect your growing family by making sure that financial resources are available to them if you're no longer there, while also providing peace of mind for your partner and loved ones while you're alive. The payout from a policy could potentially cover things you'd like your survivors to have, such as a paid-off mortgage or school tuition.

Disability insurance can be a major help if one or both parents become unable to work due to severe illness or injury. While you may have employer-provided disability insurance, make sure that it will be enough to cover essential expenses like your mortgage, debt, childcare, and household expenses for a reasonable length of time. You may want to consider supplementing your existing coverage with an individual policy or using an individual policy instead to provide more customized coverage for your needs.

Build & Maintain an Emergency Fund/Savings

Having a child increases the importance of saving for unexpected expenses. The goal is to ensure you can keep your household running in the event of job loss, illness, or a large expense you never anticipated. Building an emergency fund can help. We recommend maintaining at least three to six months' worth of essential living expenses. Simply put, your "rainy day" savings are critical to navigating life's unanticipated challenges.

Start Saving for College Today!

For many new parents, college may feel like a distant milestone, but starting early can make a meaningful difference. Even modest, consistent contributions have years to grow through the power of compounding, potentially reducing the amount that needs to be borrowed later while battling the soaring cost of college education.

Open a 529 College Savings Plan

A 529 college savings plan is one of the most popular ways to save for higher education. Contributions grow tax-deferred, and qualified withdrawals for eligible education expenses are generally tax-free. Many states also offer state income tax deductions (including WI) or credits for contributions, depending on where you live.

Wisconsin's 529 College Savings Options

• Edvest 529: Wisconsin's direct-sold 529 plan, designed for individuals who want to open and manage an account on their own. The plan offers a variety of age-based and investment portfolios, tax-deferred growth, and tax-free withdrawals when used for qualified education expenses. 
• Tomorrow's Scholar 529 Plan: Wisconsin's advisor-sold 529 plan, available through financial advisors. It offers many of the same tax advantages as Edvest while allowing families to receive professional guidance on investment selection and college savings strategies.

Both plans allow Wisconsin taxpayers to claim a state income tax deduction for eligible contributions. For the 2026 tax year, taxpayers may deduct up to $5,280 per beneficiary ($2,640 for married taxpayers filing separately), with excess contributions generally eligible to be carried forward to future tax years.

Taking Advantage of Tax Breaks

Raising a child comes with significant expenses, but several tax benefits may help offset some of the costs. We examine three areas of focus.

One of the most valuable is the Child Tax Credit, which can provide up to $2,200 per qualifying child. Families with little or no federal income tax liability may also qualify for the Additional Child Tax Credit, which can provide a refundable credit of up to $1,700 per qualifying child, subject to income and eligibility requirements. Generally, you must have at least $2,500 of earned income to qualify.

Working parents should also be aware of the Child and Dependent Care Credit, which helps offset the cost of daycare, preschool, summer day camps, and other qualifying childcare expenses. Depending on income, the credit may cover up to 50% of eligible expenses, with expenses capped at $3,000 for one qualifying child or $6,000 for two or more.

Finally, if your employer offers a Dependent Care Flexible Spending Account (FSA), you may be able to set aside pre-tax dollars to pay for eligible childcare expenses. Using a Dependent Care FSA can reduce your taxable income and may provide additional tax savings, although the same childcare expenses generally cannot be used to claim both the FSA benefit and the Child and Dependent Care Credit.

Draft/Update Your Estate Planning Documents

One of the things that a will helps accomplish is allowing you to designate who you would like to serve as guardian for your child if something happens and you're not there. It's a good idea to make sure other parts of your estate plan are in order, including powers of attorney for financial and health care decisions and up-to-date beneficiary designations. Your attorney can help you determine if setting up a trust makes sense for your situation and goals.

Our Team Can Help

If you are not sure where to start, please do not hesitate to contact our team. We can help ensure your checklist is not overwhelming and offer helpful strategies and contacts for young families.