After the Birth

Howard Rohleder

CONGRATULATIONS, your family has grown with the arrival of a first child or grandchild. As the celebration subsides, reality sets in: You want to do everything you can to pave the way for a secure future.

For new parents, the first step is to obtain two basic documents that’ll last a lifetime: a birth certificate and Social Security card. The hospital will start the process, but you need to be diligent. Is the name spelled correctly? Are birth dates and other data correct? A mistake now will cause problems later. Also, decide where to file these documents so you can find them when they’re needed.

Next, check in with your employer’s human resources department to make sure important benefits are in place:

  • Health-care coverage is essential. Although insurance companies have a grace period, you should add the newborn immediately after birth. Health issues in newborns can arise quickly and you don’t want to worry about coverage during a crisis. Make sure to add the baby to dental and vision insurance. Later verify everything with each insurance company. My daughter realized only at the time of her daughter’s first dentist visit that she hadn’t been added for dental coverage.
  • If you’ll be paying for childcare, ask if your employer offers pretax payroll deductions to cover dependent care costs. Settling on the right amount requires some planning, because money contributed must be spent within a defined time frame. But depending on your tax bracket, the savings can be substantial.
  • Check the beneficiaries on your life insurance and retirement plans. If your spouse is the primary beneficiary, it may be useful to list the contingent beneficiary as “all my children, per stirpes,” even if you currently have just one child. If you forget to review this after future births, it ensures that benefits will flow to all children equally. If you have a trust, or have prepared documents for a trust to be created in the event of your death, an attorney can advise you on how to designate the trust as a beneficiary.

Once all that’s done, consider getting life and disability insurance beyond what’s offered at work. Remember, employment-based insurance disappears if you lose your job. In addition, revise wills and other estate-planning documents. Consider who will be guardian for your children if something happens to you and your spouse.

Keep in mind that identity theft isn’t just an adult problem. Minimize who sees the baby’s Social Security number. Almost every intake form for doctors’ offices or health facilities asks for it. They don’t need it. You can leave it blank. Consider freezing the baby’s credit. A child’s identity can be coopted to open accounts without your knowledge. Only years later, when trying to get a loan, will the child learn his or her credit rating has been compromised. All three credit-reporting agencies have a process for a parent to freeze a minor’s credit. Save the information needed to unfreeze your child’s credit until he or she applies for credit—which could be in 18 years or more.

Like the parents, grandparents should make sure their estate will go where they intend. Review the beneficiaries listed in wills, trusts, insurance policies, and other key documents and financial accounts.

Given the steep cost of higher education, 529 plans can offer a good way to build a college fund, with earnings growing tax-free. But some states’ plans are loaded with high costs and poor investment options. There’s no requirement to use the plan offered by your state. If your grandkids live in another state, there’s also no reason you shouldn’t open an account in your own state to take advantage of a state tax benefit for contributions. Just remember that state tax benefits may not offset poor plan design. Morningstar’s annual ranking can help you find the best plans.

You may have read that a 529 balance counts against a student’s ability to get financial aid. It’s true that if the account is owned by the parents, the entire balance must be declared as an asset. But if the account is owned by the grandparents, typically only the distributions come into play—and you may be able to avoid financial-aid problems by using the 529 to pay college costs after the final financial-aid application is filed.

We use a “defined contribution” approach to 529 accounts for our six grandchildren, currently ages one to 10. Each grandchild gets an account at birth with a moderately large initial deposit. We then make an automatic monthly contribution from our checking account to take advantage of dollar-cost averaging. Each birthday, in addition to the monthly deposit, we make a separate payment equal to double the monthly contribution. We intend to continue this until each child’s 18th birthday. In the event my wife and I don’t live that long, our trust document instructs future trustees to continue the process so all six are treated equally.

One caveat: In your excitement to help your first grandchild, be careful about the precedent you set. What you do for the first grandchild should be affordable for future births—and you don’t know how many there’ll be. My advice: Start with a manageable sum, knowing you can always increase contributions later.

Howard Rohleder, a former chief executive of a community hospital, retired early after more than 30 years in hospital administration. His previous article was Helping Mom and Dad. In retirement, Howard enjoys serving on several nonprofit boards, exploring walking paths with his wife Susan, and visiting their six grandchildren. A little-known fact: In May 1994, he was featured—along with five others—on the cover of Kiplinger’s Personal Finance for an article titled “Secrets of My Investment Success.”

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