Feature Story

Assets & Answers: 6.5.19

How should your investment strategy change once you have children? What are finance tips for new dads?

New responsibilities for the life of a child leave many young fathers unsure how to prioritize their finances. In my practice, I usually instruct them to work on their own finances before saving for college or weddings. Sometimes parents forget that one of the best gifts you can give your children is a stable home, which includes a strong financial foundation. Using debt wisely, building an emergency fund and starting a retirement plan are all things that should be addressed before other goals can be tackled.

One way to begin an educational savings account is to establish a 529 savings plan and to request grandparents or friends make gifts to the plan instead of buying toys for holidays and birthdays. A 529 plan is a fantastic way to save because all of the earnings can be withdrawn tax-free for higher education. You can contact a financial adviser to help you understand the rules and set up the plan, or an online search can direct you if you feel confident enough to establish an account on your own.

Once your children become a bit older, model good financial behavior for them. They will be learning from your saving (and spending) habits at very young ages. Showing them how to save using a piggy bank is a great way to start, and it’s fun for little ones. A useful activity for elementary aged children is helping pay a restaurant bill with cash. You may find they enjoy counting out the bills—quite different from swiping a credit card.

—Julie Gampp
Vice president, investments
Stifel


One finance tip for any first-time parent is to establish a 529 account for your newborn. It’s an education savings plan sponsored by a state or state agency. There also is an option operated by a group of private colleges and universities. Funds invested in a 529 can be used for tuition, books and other education-related expenses at most accredited two- and four-year colleges and universities or U.S. vocational and technical schools. Additionally, individuals may withdraw up to $10,000 in tuition expenses for public, private or parochial elementary and secondary schools.

A 529 plan offers several tax benefits. First, contributions grow tax-free. Second, the earnings are completely income tax-exempt at the federal level if the withdrawals are used for qualified college expenses including tuition, fees, room and board, books and supplies. Finally, many states provide an income tax deduction for contributions. If you are the account owner and live in Missouri, you can deduct up to $8,000 ($16,000 if you are married filing jointly) of your Missouri MOST 529 plan contributions when you file your state income taxes. If you are the account owner and live in Illinois, you can deduct up to $10,000 per tax year ($20,000 if you are married filing jointly) of your Illinois Bright Start College Savings Program. Everyone’s situation varies, so be sure to speak with an appropriately credentialed professional before making any tax, legal or financial decisions.

—Rob Hehmeyer
Partner
Moneta Group

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