Lifepoint Financial Design – LifePoint Financial Services – Mike Metzger Financial Planning

As a financial planner, I already understand the need to be financially prepared for the future. So, when we found out we were going to be expecting a child, some of those preparations already began.

But, for those who do not study financial strategies as a fun hobby, I’m going to give you some insight as to what I’m doing immediately after the birth of my son.

Why AFTER the birth and not BEFORE the birth of my kid? Two Reasons:

1.      The birth of a child is deemed a “life event” for certain financial exceptions (more to follow)

2.      You don’t get a social security number for your child until after they are born.

Most people have a hard time with delayed gratification. That is, spending your money towards something that you won’t see the reward for until much later in life.

Especially when its’ not even for yourself!

Let’s be honest though, it really is for you. You don’t want to be that parent who’s hard earned paycheck is highjacked every month by paying for college tuition and rent. Or, those stitches earned from a night out having too much fun with friends (maybe this is more of a personal story)!

Investments take time to grow. But, by chipping away at it now, you’re giving your money a chance to do the work for you. Basically, small sacrifices now, can potentially earn you big rewards later.

With that out of the way, let’s talk about what a financial planner’s top financial priorities are for his newborn son.

Health Savings Account (HSA) 

If you read my blogs, I often talk about the importance of contributing to an HSA. There really is many reasons, but especially the tax benefits.

But, for the purpose of this topic, it’s because kids are expensive. And doctor visits are no exception!

In order to have an HSA, you need to have a high-deductible health insurance plan. So, in my situation, we spent our full $7,000 + deductible at the hospital when having our son. Because of this, my priority is contributing the max to my HSA to fill it back up and get those funds invested and potentially growing at a good rate. This will help us to cover all of those future doctors’ visits. If he is anything like me, there will be some quite a few accidents in the future.

Increased Life Insurance 

It’s clear to say that it’s important to make sure that if something to happens to you, that your family wouldn’t be in financial strife while they are grieving. The same could be said for me and my situation.

I’m calling my insurance company to up my term life insurance death benefit. Why term insurance? Well, it’s the easiest and lowest cost.

Sure, I do believe in more permanent insurance, like a universal life insurance policy. They definitely have their purpose, but for my unique situation, upping my term insurance policy makes the most sense.

The simplest way to think about it, is to add up what we need to cover. What are our mortgage balances, living expenses and income needs over the next 30 years? Then add inflation year-over-year for those appropriate categories, and solve for that death benefit amount. That ensures that my wife and son’s life won’t change dramatically if something were to happen to me.

Increased Disability Insurance: 

For those that are W-2 employees receiving disability insurance through their employer, your income is automatically reported to the insurance company. In turn, your coverage should correspond to that current income.

For those that are self-employed, like real estate professionals, you want to make sure that your disability coverage is being increased in tandem with your increased income. This will ensure that if you were to get injured and unable to perform your work duties, that your family would not be impacted too much by a significant drop in income. The disability insurance goes to help cover some of that difference.

College Savings Plan (529 Account)

Now that my son has a social security number, I can open a college savings plan for him and begin contributing. Why would I do this and what are the benefits?

Well, contributing to a tax advantaged college savings plan allows for the money I contribute now to grow tax-deferred in investments within the account. Then, 18 years from now, my son can withdraw that money tax-free when used for qualified education expenses (tuition, room and board, required technology, books and more). By investing this money sooner, rather than later, it allows more time for potential growth and only contributes even more money to my son’s college fund.

I’m likely to get started with a chunk of money and then set up monthly automatic contributions from there on out.

ROTH IRA College Fund: 

College is unreasonably expensive! So, I’m going to implement a combination of strategies here.

Over the years, I’ve been contributing quite a bit of money to retirement plans. One of those is a ROTH IRA, which I’ve slowly converted Traditional IRA money into my ROTH IRA over the years. At every conversion, I pay my tax rates on the portion that I move to the ROTH IRA. But, there is a good trade-off for this.

Similar to a college savings plan, a ROTH IRA is after-tax contributions, but tax-deferred potential growth and tax free withdrawals, following IRS guidelines.

I’ll move a smaller chunk of my existing ROTH IRA to a new ROTH IRA for the benefit of my son. I won’t contribute additional money monthly, but I’ll aggressively invest those funds for bigger potential gains and college use by him later down the road.

This strategy also helps to hedge against the possibility of my son deciding to not go to college- or any other reason. A 529 plan withdrawal is penalized if it’s not used for qualified education expenses.

Family Living Trust

Technically, this should be something that everyone gets set up. However, it really makes the most sense when you have a family and really need to make sure your assets are protected for your children.

It’s important to think about all of those difficult decisions and wishes for when and if you are gone. The truth is we are all going to pass away at some point. It’s an inevitable truth and something that should be addressed sooner rather than later.

Yes, a living trust will tell people where you want your money to go when you die. But, it typically also includes other legal documents; like a pour-over will, power of attorney, health care directive and others. There are many very emotionally painful situations that families can go through. Rather than have people try to make those tough decisions in the worst moments, have it already spelled out in a law-binding legal document.

My son was born in November 2021, and besides the greatest blessing of all with his existence and good health, he did get us the child tax credit for 2021 and a lower hospital bill due to some of our deductible already having been used.

Sadly, that is a financial planner’s humorous thoughts and excitement.

But, there is much more on my mind now that he is in our world. Let these above financial strategies be a resource to you, as well. Whether you have a child on the way, or you had one 5 years ago, it’s never too late to get started.

Financial preparedness is for everyone! Get started today!


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. 

All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Prior to investing in a 529 Plan, investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing. Non-qualified withdrawals may result in federal income tax and a 10% federal tax penalty on earnings.

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