Financial Planning Steps for New Parents
Welcoming a new baby into your home is a joyful time! As a new parent you are feeling hopeful about your little one’s future. Start planning for that bright future today by taking a few financial planning steps that can help set your family up for success. Whatever your financial situation, starting now, even with “baby steps,” can have a tremendous positive impact.
If you aren’t sure where to start, we created a simple checklist as a guide.
While there can be many steps in financial planning, the first important step is to start! Time is your friend when it comes to financial planning areas such as saving, investing and insurance protection for your family. The beauty of creating a budget and developing a financial planning checklist when your children are young is that you have plenty of time to factor in changes along the way. Savings and investments can benefit from time to grow, and life and disability insurance for you and your children may be more affordable the younger you are.
Begin With a Few Basics
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Consider the need for an emergency fund. Financial sources recommend having three to six months of living expenses in savings. While that can be challenging, it's essential to make a start with a manageable amount and be committed to the purpose of the emergency fund (only use when necessary!)
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Begin or reevaluate retirement planning. You can't care for others (including children) if you do not take care of your own needs. Take advantage of your employer's retirement plans, especially if they provide matching contributions, and set up monthly pre-tax payroll deductions. Make sure you are aware of retirement saving options available to you. Self-employed? Consider an IRA.
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Consider life and disability insurance. Life and disability insurance are crucial for protecting your family’s financial well-being in the face of unexpected events. It’s hard to think about or plan for, but if you were to experience a fatal or debilitating accident or illness, you would want your family to be financially secure.
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Look into available tax credits. Review what tax credits and deductions you might qualify for while your children are young and possibly in day care. In addition, there may be other tax benefits available if you invest in a 529 education savings plan for your child’s future education.
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Start saving for future education now (you’ll thank yourself later). Consider saving for your child's future education needs as a priority in your financial planning steps. According to the College Board, one year of tuition, room and board and expenses at an in-state public university is currently more than $29,000.
This cost underscores the importance of saving early, which can help you mitigate the financial burden when your child is ready for college or other future education. Plus, if your child does not pursue college, there are many other permitted uses of 529 funds.
In a hypothetical example, if you start saving in a 529 account for your newborn today and contribute just $25 a month for 18 years, your child could have about $8,730 by the time they are ready for college (assuming 5% in annual earnings). In another hypothetical example, if you start saving in a 529 account for your newborn today and contribute $100 a month for 18 years, your child could have around $35,065 by the time they are ready for college (assuming 5% in annual interest). Investments are subject to risk and loss, though starting early can have a positive impact on compounding growth.
The good news is that you can start saving now for your child's future education in a tax-advantaged 529 savings account. Setting up an account takes about 15 minutes, and you can open an account with no minimum contribution required.
Raising children requires an investment in time, love and money, and with a solid financial plan in place, you can make sure you’re saving toward the things that matter most, including their future education. Get started by opening a 529 education savings account with The Education Plan today.
Frequently Asked Questions
A 529 plan is a tax-advantaged investment account that is designed to grow savings for future education expenses for a specified beneficiary. 529 plans offer unique benefits and features that make them an appealing strategy for education related saving.
A 529 plan can be used for “qualified educational expenses.” For federal tax purposes, qualified educational expenses include:
- Tuition and fees at accredited higher education institutions
- Books
- Supplies and equipment
- Room and board for beneficiaries attending on at least a half-time basis.
- Computer technology, equipment, and internet access
- Up to $10,000 a year for K-12 tuition and expenses (Limit increase to $20,000 in 2026)
- Expenses for educational special needs services
- Transfers to an ABLE account for the beneficiary (transfer subject to annual limit)
- Apprenticeship expenses
- Up to $10,000 for student loan repayment
- Credentialing expenses and certification programs
- Roth IRA rollover for the beneficiary
If you're not sure if an expense is considered "qualified," we recommend consulting with a tax professional or advisor. Unqualified expenses will be treated like ordinary income: state and federal taxes will apply, with a 10% federal penalty for withdrawals from your 529 plan used to pay for them.
New Mexico residents can deduct contributions to The Education Plan from their state taxable income each year. This includes contributions made to an account that you are not the account owner of.
You cannot deduct contributions from federal income taxes.
Any person at least 18 years old with a valid Social Security Number (SSN) or Tax Identification Number (TIN) can open a 529 account. The account holder chooses the investment options, designates a beneficiary, and requests the distribution of funds.
The cost of college continues to rise, including tuition, housing, food and supplies, so it’s important to begin saving as soon as possible. You can learn more about how much a typical college education costs on our Cost of College page. It’s never too early or too late to start.
The Education Plan offers a variety of investment options to fit you and your family’s needs, risk tolerance and goals. You can see all of the available investment portfolios on the investments page.
Yes, you can use up to $20,000* a year to cover tuition and expenses for K-12 education.
Qualified K-12 expenses include:
- Tuition (public, private, and religious)
- Curriculum materials, books (including digital/online) and instructional materials
- Tutoring and instructional classes**
- Fees for a nationally standardized norm-referenced achievement test, an advanced placement examination, or any examinations related to college or university admission
- Dual enrollment program fees
Educational therapies for students with disabilities provided by a licensed or accredited practitioner or provider, including occupational, behavioral, physical, and speech-language therapies
*Starting in tax year 2026. The annual limit is $10,000 in tax year 2025 and permitted for tuition only.
**Tuition for tutoring or educational classes outside of the home, including at a tutoring facility, but only if the tutor or instructor is not related to the student and—
(i) is licensed as a teacher in any State,
(ii) has taught at an eligible educational institution,
or (iii) is a subject matter expert in the relevant subject.
You can open an account with The Education Plan online or by mailing in the enrollment form. In order to open an account, you will need the following information:
- Your social security number or TIN
- Your address
- Your bank account information (in order to fund the account)
- The beneficiary’s social security number or TIN
- The beneficiary’s birthday
-The beneficiary’s address
