As many of you know, my wife and I had our first child this past April. It’s been an incredible experience, with tons of exciting moments and many new challenges and responsibilities as well. Now, much of our time is spent sterilizing baby accessories, attempting to master the swaddle and trying to keep up with the ever-changing guidance of the American Academy of Pediatrics.
Though fun and fulfilling, caring for a newborn leaves very little time to think about much else, so it’s easy for important financial decisions to fall to the bottom of your priority list. So, I wanted to make a short list of items that, candidly, I’m still working through myself. This isn’t meant to be exhaustive, but rather a practical guide for new parents (or grandparents) to reference during those few spare moments between naps and feedings.
1. Health Insurance
Newborns are typically covered under the mother’s existing health insurance plan for the first 30 days following birth. However, if your child is not formally added to the plan within that window, coverage may end.
The birth of a child is considered a Qualifying Life Event (QLE), which opens a special enrollment period. During this time, not only must you ensure your child is enrolled in an insurance policy, but you should also review your plan documents to see if you can switch your own plan altogether. You may have been on a plan that was suitable for you and/or your spouse, but with your newest member of the family it may no longer be appropriate. Consider:
- HMO vs. PPO options
- Monthly premiums, deductibles, and out-of-pocket maximums
- Coverage for pediatricians, specialists, and prescription drugs
2. Paid and Unpaid Family Leave
Ideally, you've researched these topics well before your baby's due date, as the last thing you want to be worrying about during those first few weeks is whether your job is secure and how/if you'll be paid while on leave. But if life got in the way, don’t worry. Here’s a quick summary of what your options may look like:
- Paid leave
The first place to start is understanding what benefits your employer offers. Some employers provide paid parental leave through their employee benefits package, offering full or partial salary replacement during time away from work. Others provide wage replacement through a short-term disability policy.
While federal law does not require employers to provide paid family leave, some states do. For example, California offers paid family leave benefits through the State Disability Insurance (SDI) program, which generally provides up to 8 weeks of paid bonding leave for eligible parents. If an employer opts out of the state program, they are often required to provide comparable benefits through alternative means, such as a private short-term disability policy.
- Unpaid leave
While federal law does not require employers to provide paid family leave, the Family and Medical Leave Act (FMLA) does require eligible employers to provide up to 12 weeks of unpaid, job-protected leave following the birth of a child. Also, if you’re enrolled in your employer's group health insurance plan, your coverage is generally maintained during the FMLA leave period.
In states with additional employee protections, such as California, employees may be entitled to longer periods of unpaid job-protected leave when state and federal programs are used together.
3. Life Insurance
Whether a term or permanent life insurance policy is appropriate is beyond the scope of this post. Regardless of which policy type is right for your family, the important thing is getting a policy into place, particularly for the individual whose income the household relies on most.
If you have a young child, odds are you’re in the early stages of your career and wealth building journey. While that generally means you’re cheaper to insure, it also means you likely haven’t had sufficient time to accumulate substantial assets. As a result, your family is more dependent on your future earnings potential than existing wealth (since presumably not much has accumulated). If your income stopped, your family could face challenges maintaining their standard of living, hence the significance of insurance.
There are numerous ways to calculate what “the right amount of insurance” is. A simple approach is the “DIME” method:
D = Debt (credit cards, student loans, etc., excluding mortgage)
I = After-tax income replacement (how many years of income your family would need)
M = Mortgage (remaining balance on your home)
E = Education (future costs of your child’s college tuition)
For example:
Debt: No outstanding debt
Income: $100,000 in annual after-tax income, replaced for 15 years
Mortgage: $500,000 remaining mortgage balance
Education: $150,000 estimated education funding
Using the DIME method would suggest a $2.15 million death benefit would be appropriate for this individual and their family.
It's also important to consider coverage for a stay-at-home or lower-earning parent. Although their financial contribution may be smaller, the value they provide through daily support, household management, and childcare, is difficult to quantify and replace if something were to happen.
Before purchasing a private policy, review your employer benefits, as many provide group term coverage at little or no cost.
4. Long-Term Disability Insurance
If your income plays a meaningful role in supporting your household, disability insurance is worth considering. Just as life insurance protects against the loss of income due to death, disability insurance helps protect against the loss of income resulting from an injury or illness.
The cost of disability insurance can vary significantly based on personal factors such as age, health history, and occupation, as well as policy features including the monthly benefit amount, length of coverage, and whether the policy uses an "own occupation" or "any occupation" disability definition.
If the premiums for a privately purchased policy are paid with after-tax dollars, the disability benefits are tax-free. Conversely, when an employer pays premiums on behalf of an employee, and deducts those payments as a business expense, disability benefits received are taxable as ordinary income to the individual.
As with life insurance, start by reviewing what your employer offers.
5. Estate Plan and Beneficiary Designations
Adding a new member to the family is often the perfect catalyst to review your beneficiary designations and complete an estate plan, particularly a Revocable Living Trust and Last Will and Testament.
An estate plan becomes especially important when you have minor children for several reasons:
- You can designate a legal guardian for your child(ren) in your Last Will and Testament should something happen to you before they reach age 18. Absent this designation, a judge will make that decision on behalf of your family.
- You can name a successor trustee in your Revocable Living Trust to manage assets for the benefit of your child(ren). The successor trustee and legal guardian can be the same person, and often are, but they can also be separate individuals depending on your family's circumstances.
- You can specify age-based distribution milestones in your Revocable Living Trust. Rather than your child receiving a lump sum inheritance at age 18, you may direct that assets be distributed over time. For example, 1/3 at age 25, 1/3 at age 30, and the remainder at age 35.
- Protective provisions can also be included. For example, a substance abuse clause may allow a trustee to withhold distributions if a beneficiary is struggling with addiction. More commonly, trusts include spend-thrift provisions, which allow a trustee to delay or limit distributions if they believe the funds would be used irresponsibly. These provisions can also help shield assets from creditors.
The bottom line is that an estate plan gives families the ability to customize how assets are managed and transferred to future generations. While a simple beneficiary designation can be effective at avoiding probate, it provides little control beyond that. A thoughtfully drafted estate plan allows you to incorporate safeguards such as age-based milestones, creditor protection, and trustee oversight to help ensure assets are used in a manner consistent with your wishes.
6. Saving for the Future
Once the foundational, defensive pieces (i.e., insurance, estate plan, beneficiary designations, etc.) are in place, you can shift toward offensive strategies to start building for your child’s future.
Fortunately, there are several savings options available. Unfortunately, they can be confusing as they each come with different tax implications, contribution limits and use cases.
Uniform Transfers to Minors Act (UTMA) Accounts
These accounts function similarly to a taxable brokerage account and are managed by a parent or custodian until the child reaches the age of majority, typically 18.
Here’s how they work:
- The IRS does not impose contribution limits and contributions are not tax-deductible.
- However, contributions in excess of $19,000 ($38,000 for gift splitting married couples) in 2026 are subject to gift tax reporting.
- Investment earnings (dividends, interest and capital gains) are taxed annually and subject to the “kiddie tax” rules. For 2026:
- The first $1,350 of investment earnings is tax-free
- The next $1,350 of investment earnings is taxed at the child’s tax rates (likely 10% ordinary income and 0% capital gains / qualified dividends)
- Investment earnings above $2,700 are taxed at the parents’ tax rates
Although contributions are not tax-deductible and investment earnings are not tax-deferred, many families choose to use UTMAs because of their flexibility. Unlike 529 plans or retirement accounts, UTMAs do not have a specific intended purpose, meaning funds can be used for a wide variety of expenses without triggering penalties. However, it's important to understand that gifts made to a UTMA are irrevocable and will ultimately become the beneficiary's property once they reach the age of majority, regardless of their financial maturity or personal circumstances.
529 College Savings Plans
These are likely the most commonly used savings options for minors, particularly for education.
Here’s how they work:
- Contributions are made to the account but are not tax deductible federally. Over 30 states offer a state income tax deduction for contributions, California believe it or not is not one of them.
- While the funds remain in the account, the investment earnings/growth is tax deferred, similar to a retirement account.
- Withdrawals are tax-free when used for qualified education expenses. However, if funds are withdrawn for non-qualified expenses, the growth portion of the distribution is taxed as ordinary income and subject to a 10% penalty. While the basis / original contribution amount (since there isn’t a federal tax deduction at contribution) is not taxable or subject to penalty.
While the IRS does not impose annual contribution limits, each state sets a maximum total lifetime contribution per beneficiary.
529 accounts allow for a “super funding” option in which you can bunch 5 years of gifts into one year, and still have the contribution qualify for the annual gift tax exclusion. This needs to be properly accounted for on IRS Form 709. Otherwise, contributions to the account in excess of $19,000 ($38,000 for gift splitting married couples) in 2026 need to be reported and will ultimately reduce the donor’s federal lifetime gift and estate exemption.
One of the most common concerns we hear from clients is the fear of overfunding a 529 plan and "locking" money away if their child doesn't end up attending college or does attend but doesn't use all the funds.
This concern is generally overstated. 529 plans are far more flexible than many people realize:
- Funds can be used for certain K–12 education expenses, not just college.
- Funds can be used for many vocational, trade, and apprenticeship programs.
- Unused funds can be transferred to another qualifying family member's 529 account.
- Unused funds can be rolled into a Roth IRA for the beneficiary (read more here).
Even as a last resort, funds can be withdrawn for non-qualified educational expenses. As mentioned, the growth portion would be subject to ordinary income taxes and a penalty, while your basis / original contribution amounts are returned tax and penalty free.
Although paying taxes and penalties is not ideal, the account still likely benefitted from years of disciplined savings and tax-deferred growth while the funds remained invested.
Given the numerous ways funds can now be repurposed, the risk of modestly overfunding a 529 plan is often less concerning than the risk of not having enough saved when educational expenses eventually arrive.
Trump Accounts ("530A Accounts")
Trump Accounts are a new savings vehicle, introduced by the One Big Beautiful Bill Act (OBBBA) of 2025, designed to encourage long-term investing for children from an early age.
Here’s how they work:
- They function similarly to a Traditional IRA, except earned income is not required to make contributions. Contributions are limited to $5,000/year. Employers can contribute up to $2,500/year, which counts toward the annual contribution limit. Charitable organizations and the government can also make contributions, but these amounts do not count toward the annual contribution limit.
- Contributions made by individuals are not tax-deductible, meaning the basis (i.e., non-deductible contribution amounts) must be tracked throughout the life of the account. Surprisingly, California does not conform with federal tax treatment of these accounts. While earnings grow tax-deferred federally, California residents must report the account's investment income each year for state income tax purposes.
- Employer contributions are treated differently. Like contributions made to a 401(k) or employer-sponsored health insurance plan, they are a deductible business expense, therefore are made on a pre-tax basis. Contributions made by charitable organizations are also on a pre-tax basis.
- The account's "growth period" lasts until the child reaches age 18. During this time, investment options and withdrawal flexibility are extremely limited.
- Once the child turns 18, distributions are allowed and follow the same rules as Traditional IRAs. Upon withdrawal, the account’s tax-deferred investment earnings are taxed as ordinary income, with a 10% early withdrawal penalty if the beneficiary, now account owner, is under the age of 59.5. Contributions made by parents, grandparents, and other individuals are funded with after-tax dollars (i.e., non-deductible), meaning those amounts (i.e., the accounts’ basis) can be withdrawn tax and penalty free. While contributions funded by employers, charitable organizations, or government programs are made on a pre-tax basis and are taxed as ordinary income and subject to an early withdrawal penalty if the account owner is below the age of 59.5 when distributed.
Notably, children born between 2025-2028 who are U.S. citizens and have a work authorized Social Security number are eligible to receive a $1,000 government-funded seed contribution to their Trump Account. So, even if you ultimately prefer saving through a UTMA or 529 plan and do not plan to make additional contributions to a Trump Account, you should still open one to claim the government's initial contribution if your child qualifies.
You can file your Form 4547 and open children’s Trump accounts at trumpaccounts.gov. Based on recent IRS guidance, only a parent or legal guardian should open a Trump Account for a child eligible for the $1,000 government seed contribution.
7. Update Tax Withholding / Cash Flow Optimization
New parents may become eligible for a variety of tax credits and deductions, including the Child Tax Credit (CTC), Earned Income Tax Credit (EITC), and Child and Dependent Care Credit, among others.
If you expect your household income to be below $200,000 ($400,000 for married couples filing jointly) in 2026, consider submitting an updated Form W-4 to your employer. With the addition of these tax credits/deductions, your overall tax liability may decrease.
Reducing your tax withholding accordingly can increase your take home pay and improve monthly cash flow when expenses are typically elevated and spending on necessities like diapers, formula, and convenience meals tends to rise. This can be especially helpful if one parent plans to stay home with the new baby or if your household income will otherwise decline.
Just keep in mind that reducing your tax withholding to maximize cash flow throughout the year means you’re less likely to receive a large tax refund when you file your tax return.
Bottom Line
Some of these items are non-negotiable, like adding your child to your health insurance. Others, while still important, can be addressed over time. You don't have to accomplish everything on this list immediately.
I know firsthand how valuable one’s spare time is when you have a young one at home. For what it’s worth, I’m working through many of these steps right alongside you. Hopefully, this guide helps simplify the decision-making process during those brief moments of downtime.
The key is acknowledging the financial responsibilities associated with becoming a parent and taking proactive steps to protect your family, prepare for life’s uncertainties and set your child up for a strong financial future.
If you have questions, or know someone who might benefit from this, feel free to reach out.