5 Financial Tips to Share with Clients Who Are New Parents


Each year, it is estimated by UNICEF that 130 million babies are born, resulting in many parents welcoming a new member into the family. Throughout this current climate, and beyond, it’s important for growing families to be equipped with the right planning tools and resources to set themselves up for financial success. Here are 5 financial tips to share with your clients who are new parents or are thinking about starting a family in the near future.

1. Budget and save for upcoming expenses

Welcoming a child into the family, whether through birth or adoption, can come with major expenses, and budgeting and saving up front for any of those known expenses can help alleviate a lot of stress new parents face. During the current crisis, it is critical to start having conversations with your clients early to help them map out budgeting and upcoming expenses, or re-work the plan you already had in place. Start by having your client check with their health insurance provider to get an estimate for what different types of births will cost out of pocket. Consider the cost of doctors appointments, hospital expenses, and any extra services, such as lactation consultants, that might be of importance to your client. Set up a savings plan over the course of the pregnancy to help with these medical expenses so when the time does come, the family has the funds available. If your client is adopting, plan for any extra expenses that come with an adoption, such as travel, court, and agency fees.

Additionally, think about how much the client’s expenses will rise each month once the child comes home. Set aside money for any unpaid parental leave and childcare, and budget for necessities, such as diapers and formula. If your client likes to see their savings progress, point them to apps, such as Mint, where they can continuously monitor how they are doing.

2. Start saving early for education

Discuss with your client the education goals for their children, because the earlier they start saving, the better. Since there are so many expenses associated with a new child and excess funds may not be available to start saving for education right away, consider pointing them to a debit or credit card that puts a reward percentage into a College Savings 529 plan for every dollar spent. It’s an easy way to get started and once the client has excess funds to contribute, they can easily set up a monthly withdrawal from their checking or savings account into their already established 529 savings plan.

3. Available tax savings

  • Childcare: Childcare, whether in the form of daycare or personal nanny, can be the highest expense for some families when welcoming a new child. In some cases, childcare can cost more than a client’s monthly mortgage. Thankfully, there are some ways to save through the use of tax credits and dependent spending accounts.
  • Tax Credit: The Child and Dependent Care Tax Credit can get your client a percentage back on the amount of childcare expenses paid. Be sure to review the income limitations, child’s age, and additional rules regarding this credit. Additionally, check to see if your client has access to a dependent care flexible spending account. These types of accounts let employees set aside pre-tax dollars, up to $5,000 per household each year, to save for childcare expenses. This can be a big tax savings for new parents.
  • Adoption: If your client is adopting, there is a tax credit for adoptions finalized within that tax year. This credit is not refundable, meaning that the client has to have a federal tax liability in order to take it. Since adoptions are very expensive, this credit can help alleviate some of the cost within that first year.
  • Healthcare: Finally, check to see if your client has access to a flexible spending account for healthcare. These types of accounts allow you to set aside pre-tax dollars to save for qualified medical expenses. New parents can greatly benefit from these types of accounts since there are so many medical expenses associated with the birth or adoption of a child.

4. Adjust W-4 withholding

It’s important to review your client’s W-4 withholding when a new child is welcomed into the family. Without updating the form to account for a new child, your client could be withholding too much tax. With all the expenses children bring to a family, it’s important that your client gets every dollar available to them instead of waiting until filing season to get a refund.

5. Consider a 401K withdrawal

The SECURE Act was recently signed into law and took effect on January 1, 2020. This act now allows new parents to take a $5,000 penalty free withdrawal from their retirement account. For a couple, that means a $10,000 penalty free withdrawal for the birth or adoption of a child. Additionally, under the CARE Act which was signed in March 2020, the 10% penalty associated with early withdrawal on tax deferred retirement accounts was eliminated. If your client needs excess funds, you might consider an additional withdrawal. Unless you elect otherwise, one third of the money withdrawn will be reported as income on your tax return over the next three years so it’s important to adequately plan for the addition in income. Under this act, you can repay the withdrawal over a period of three years if you are able to. Although it is rarely recommended to cash out retirement savings for things other than retirement itself, it may make sense for your client if the expenses of the new child are substantial.


Welcoming a new child into the family is an exciting time, and the last thing you want your client to do is worry about their finances. In order to combat the added stress of money into their newly established lives with a child, start the conversations about planning and budgeting early, especially during the current climate. Set up meetings to talk to them about education goals for their child, and make sure they are aware of the available tax savings available to them and look into adjusting their W-4 withholdings. Also talk to them about considering a 401K withdrawal if they are in need of excess funds to help with the expenses of a new child. By having these discussions with your client early, you are setting your client up for financial success in the long run.

Like what you’re reading?

Subscribe to our FREE newsletter and we’ll deliver content like this directly to your inbox.