Getting your finances ready for adoption
The decision to start a family is a joyful event. However, parents considering adoption should consider advance planning for a range of financial issues unique to the process and the child they hope to bring into their home.
According to the U.S. Department of Health and Human Services, the costs of adopting(https://www.childwelfare.gov) may be a few hundred dollars or can easily exceed $40,000 based on the form of adoption you choose.
So how do you get your finances ready for adoption? By doing your homework and making sure the price and processing work of adoption – all adoption resources, rules and requirements differ locally – won’t eclipse other essential financial goals like retirement, saving for your future child’s education and of course, the higher daily living expenses common to all new families. Start with these tips:
Evaluate your own finances first. It’s generally a good idea to work with qualified financial or tax experts to evaluate whether you can manage adoption costs from savings or grants you don’t have to pay back. Starting a family is a major overall financial commitment no matter what path you take to build yours.
Know the tax benefits of adoption. The federal government offers tax breaks for adoption, but you need to study and follow the rules. According to the IRS, tax benefits for adoption include both a tax credit for qualified adoption expenses paid to adopt an eligible child and an exclusion from income for employer-provided adoption assistance. The credit is nonrefundable, meaning that it is limited to one’s tax liability for the year. Any credit in excess of tax liability may be carried for up to five years. Adoptions of special needs children may qualify for special treatment. Visit IRS.gov for more details.
Check your workplace benefits. A 2013 Aon Hewitt study said only 12 percent of U.S. employers offered a financial adoption benefit in 1990 rising to 52 percent. Check with your employer to see whether they offer adoption benefits, and factor those benefits into your overall financial plan.
Know your legal costs. Adoption is a legal process, and depending on the kind of adoption process you pursue, it is wise to work with an attorney to make sure your application is in order and your rights are being protected.
Think about insurance. Life and health insurance options need to be reviewed for cost and thoroughness of coverage before you begin the adoption process. Life insurance may come up as part of the estate-planning process, but health insurance in particular requires special consideration in case the child you plan to adopt has medical or developmental needs.
Evaluate available adoption grants. Various community groups, religious organizations and nonprofit organizations and foundations may be a resource of grant funding for the adoption process. Work with trusted advisors to find out if these resources are reliable and could help you afford your adoption.
Network and learn. Many communities and organizations sponsor support and planning groups for parents of adopted kids and those planning to adopt. Depending on the adoption avenue you’re considering, make it a point to get to know parents who have already gone through the process to understand all sides of what their lives as adoptive parents are like – make your learning process about more than the money.
Bottom line: Adoption is one of life’s most rewarding events. The amount of financial planning you can do to support your adoption process will help give your new family the best possible start.
Nathaniel Sillin directs Visa’s financial education programs. To follow Practical Money Skills on Twitter: www.twitter.com/PracticalMoney.