I'm expecting my first child in just a matter of weeks, and while I'm basking in the midst of baby showers and nursery color schemes, there are some much more serious issues that we will need to tackle as we move beyond her birth.
I'm expecting my first child in just a matter of weeks, and while I'm basking in the midst of baby showers and nursery color schemes, there are some much more serious issues that we will need to tackle as we move beyond her birth. Of course there's health insurance for her, life insurance for us, and a will, but a little planning now will also help us afford things like child care and college. Fortunately, Uncle Sam has put a few programs in place that allow parents to save for these major expenditures . . . and provide a nice tax break to boot!
Dependent Day Care FSA Account
Check with your employer to see if they offer a dependent day care flexible spending account, because you could be eligible to sock away up to $5,000 a year from your paycheck into a pre-tax account to be used for child-care expenses until your child turns 14. For families in the 25 percent federal tax bracket, this type of account allows you to save about $1,250 per year at the maximum contribution plus additional savings by avoiding Social Security and Medicare taxes.
There are a few important things to note about this program. First, both parents (or the parent in a single-parent household) must work. Second, if your spouse's company also offers a dependent care FSA, you are still capped at $5,000 in total family annual contributions. You also don't want to overestimate your expenses, since the money in the account won't roll over into the next year (and should you leave your job, you forfeit any unused contributions). Finally, the child-care expenses that you pay for through this spending account must be those that allow you and your spouse to work. So paying a babysitter while you spend a night at the movies doesn't count!
Keep reading for three more ways to save.