Expecting your first child is one of the most meaningful milestones you’ll experience — and one of the most financially complex. Between choosing pediatricians, preparing the nursery, and navigating parental leave, the financial to-do list can feel never-ending. The good news: A clear financial plan for new parents doesn’t require doing everything at once. Focusing on a few high-impact strategies — across tax planning, insurance, savings, and estate planning — can help you build a stronger foundation for your growing family.
Build your financial foundation before baby arrives
The months before your child’s arrival are a great time to take stock of your overall financial picture. Even with substantial assets in place, welcoming a new child can shift your financial landscape in meaningful ways — and addressing those shifts proactively is far more effective than reacting to them later.
Start by reviewing your liquidity to confirm you have ready access to funds for near-term needs. Childcare arrangements, changes to health coverage, parental leave adjustments, and one-time setup costs can arrive quickly and often in combination. Having liquid reserves aligned to your upcoming needs helps you avoid tapping long-term investments at the wrong moment in the market.
At the same time, work with your wealth advisor to map out how your cash flow may evolve in the first year. Many families find the financial picture shifts more than expected — not because of financial strain, but because the number and scale of new decisions can compound fast. Getting that visibility early means your comprehensive financial plan can adapt alongside your growing family.
Expanding your family through adoption
- Adoption comes with many emotional and financial considerations, but tax benefits may help offset qualified adoption expenses. The federal adoption tax credit for the 2026 tax year (taxes generally filed in 2027) is worth up to $17,670 (up from $17,280 for 2025). The amount you can claim also depends on your modified adjusted gross income (MAGI). For the 2026 tax year, the credit phase-out begins at $265,080 and phases out completely at $305,080 or above.
- Families adopting a child with special needs may also qualify for additional tax benefits, even if they have limited out-of-pocket adoption expenses. To claim the credit, taxpayers generally must file IRS Form 8839 with their federal tax return.
- To help ensure you receive the full benefit of the tax savings, contact your advisor.
Reviewing your insurance is a smart first move
The birth of your child is a qualifying life event, which means you can update your health insurance coverage outside of open enrollment. Take time to compare your available plans — weighing deductibles, out-of-pocket maximums, and in-network providers — to determine which best supports your expanding family’s anticipated needs.
Beyond health insurance, consider evaluating your term life insurance and disability insurance coverage. Term life insurance can provide your family with a predetermined death benefit should you pass unexpectedly, offering liquidity to help manage debts, living expenses, and educational costs. A sensible starting point for many families is coverage equal to 10-12 times your annual income, though a personalized analysis is a more reliable approach — generic rules of thumb may not reflect your specific situation.
Disability insurance is equally worth examining. A long-term disability policy seeks to replace 60% to 70% of your income if you become unable to work because of illness or injury, helping support your household while you recover.1
Saving for your child’s future — 529 plans and Trump Accounts
Opening a 529 plan early gives your child’s education savings more time for potential growth. These tax-advantaged accounts allow contributions to grow tax-deferred, with withdrawals tax-free when used for qualified education expenses — from K-12 tuition to college and vocational programs. Under SECURE 2.0 rules, up to $35,000 in unused 529 funds may be rolled over into a Roth IRA, providing additional flexibility if your child’s educational path changes.
For children born between Jan. 1, 2025, and Dec. 31, 2028, Trump Accounts represent a new opportunity worth understanding. Created under the One Big Beautiful Bill Act, these traditional IRA-style accounts allow annual contributions of up to $5,000 and include a one-time $1,000 government contribution for eligible children. Unlike 529 plans, Trump Accounts are designed to build long-term retirement wealth — not education savings — and funds may only be invested in U.S. stocks during the growth period. Open for enrollment as of July 4, 2026, these accounts can complement a 529 plan as part of a broader savings strategy.
Tax planning strategies that can help lessen the financial burden
Use a dependent care flexible spending account (FSA) to lower your tax bill. If your employer offers a dependent care FSA, you can contribute up to $7,500 annually in pretax dollars for qualifying childcare expenses. These pretax contributions reduce your taxable income, leading to meaningful tax savings — especially for higher-income households. Enroll during open enrollment or after a qualifying life event to maximize this benefit. Learn more about dependent care FSAs, eligible expenses, and tax advantages.
The Child and Dependent Care Tax Credit (CDCTC) is a federal credit that can reduce your tax liability based on qualifying work-related childcare expenses. Depending on your income and expenses, coordinating both the dependent care FSA and the credit may offer the greatest combined tax benefit — a conversation worth having with a tax professional who can evaluate your full picture.
The Child Tax Credit is another potential credit, which provides up to $2,200 per qualifying child for tax year 2026, with modified adjusted gross income phase-outs affecting eligibility at higher income levels.
Estate planning is an essential step for new parents
Estate planning for new parents is one of the most frequently delayed steps — many first-time parents assume it’s a concern reserved for later in life. But naming a guardian in your will is one of the most important decisions you can make — without one, a court will determine who raises your child.
Before your child arrives, consider having the following documents in place:
- A will that designates a guardian and outlines how your assets will be distributed
- A durable power of attorney that authorizes someone you trust to manage your financial affairs if you become incapacitated
- A healthcare power of attorney that empowers your designee to make medical decisions on your behalf
- A living will that documents your end-of-life care preferences
For many growing families, a revocable living trust can also provide meaningful benefits — helping avoid the delay and expense of probate, managing assets during a period of incapacity, and ensuring your wishes are carried out efficiently.
Finally, don’t overlook beneficiary designations on your retirement accounts, life insurance policies, and other financial accounts. These designations transfer assets outside of your will and should be reviewed — and updated where appropriate — before or shortly after your child arrives.
Download your new parent financial checklist
Bringing it all together
Think of this as your new parent financial checklist: It’s not about solving everything before you bring your child home. It’s about taking the right steps in a sensible order — building emergency reserves, protecting your income with appropriate insurance, starting tax-advantaged savings for both education and retirement, and putting essential estate documents in place.
Mercer Advisors provides integrated financial planning, tax, investment management, estate planning, insurance solutions, and more — all coordinated by a single team. Contact us to arrange a complimentary consultation and learn how we can help you build toward your family’s goals.
Ready to build a financial plan for your growing family? Contact Mercer Advisors to arrange a complimentary consultation.
Ready to build a financial plan for your growing family?
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A Trump Account is a new type of traditional IRA created under the One Big Beautiful Bill Act for eligible individuals under age 18 with a Social Security number. It allows annual contributions of up to $5,000 during a designated growth period, with funds required to be invested in U.S. stocks. Children born between Jan. 1, 2025, and Dec. 31, 2028, are eligible for a one-time $1,000 government contribution. After the growth period, the account can transition to a standard traditional IRA, convert to a Roth IRA, or roll over to another eligible retirement account.
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There’s no required minimum age to open a 529 plan — you can open one as soon as your child has a Social Security number. Starting early allows more time for potential investment growth on a tax-deferred basis, and withdrawals for qualified education expenses are tax-free. 529 plans can be used for K-12 tuition, trade schools, undergraduate programs, qualifying graduate schools, and student loan repayment up to certain limits.
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Yes. The birth or adoption of your child is considered a qualifying life event, meaning you can make changes to your health insurance plan outside of the standard open enrollment period. You typically have 30 to 60 days from the birth or adoption date to elect new or updated coverage for yourself and your child. Review your available plan options carefully, considering deductibles, out-of-pocket maximums, and anticipated use.
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At a minimum, consider having a will with a named guardian, a durable power of attorney, a healthcare power of attorney, and a living will in place before your child arrives. Without a will that designates a guardian if you pass away, a court will make that determination. You may also want to consider whether a revocable living trust is appropriate for your situation to help manage assets during incapacity and streamline the transfer of assets after death. Consulting an estate planning attorney can help ensure your documents are legally sound and reflect your wishes.
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A 529 plan is a tax-advantaged account specifically designed for education savings, with tax-free withdrawals for qualified expenses ranging from K-12 through college and vocational programs. A Trump Account is structured as a traditional IRA for minors and is designed to build long-term retirement wealth — not education savings. Both accounts can complement each other as part of a broader savings strategy. The right allocation between them depends on your goals, timeline, and overall financial plan.
1 “This Overlooked Insurance Policy Could Help You Stay Financially Afloat if You Couldn’t Work.” CNBC Select, Dec. 31, 2025.
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