Savings Accounts for Future Child Expenses

Question

If I were looking to have a kid in the next 3-6 years, what (if any) tax-advantaged plans exist to help saving for future, related expenses?

To be more specific, there are numerous types of savings plans that offer pre-tax contribution, reduced taxes on growth, or no income tax on disbursements that are affiliated with specific, major lifetime events (such as 529 plans for college, or 401ks/IRAs for retirement). What I have not been able to find are plans that generally allow for future child-rearing expenses, including:

1. Hospital visits for pregnancy care
2. Formula, diapers, clothing, other consumables
3. Daycare

Of these significant, relatively predictable expenses, only the first has any related plans that I know of (specifically HSAs and FSAs), and it isn't limited to having kids. Do any plans specifically for future parents exist to help offset the costs of having a baby?

To be specific, I am not asking about major expenses later on in the child's life (like this question). I am asking about major expenses that the parents will face in the first few years of (and the months leading up to) parenthood.

Answer 1

There aren't any.

Of these significant, relatively predictable expenses

I would not necessarily classify child birth cost as either significant or predictable.

Depending on your health insurance a healthy baby birth will cost very little out of pocket. Even with crummy insurance, many children can be birthed for less than $1,000. Often prenatal vitamins are often prescribed so insurance will pay all or part of their cost. This does not happen with most adults with other conditions, but the vitamins have such a positive effect on outcomes, that it is acceptable practice by all involved. If no insurance exists there are many budget friendly ways to birth a baby including midwifes and home delivery.

Then there is the other side of the coin. Costs for unhealthy baby births can go through the roof. This can be applicable to both mom and baby. In one case, of which I am familiar, a healthy baby developed jaundice so severe she had to spend a few days in the NICU. After that she was just fine. Luckily mom and dad had decent healthy insurance and their out of pocket was not much.

In this case I really like Dave Ramsey's advice on this subject. When momma gets pregnant pause some financial goals and save money. When mom and baby are home fine for a couple of weeks use that saved money to whatever financial goal you are then working. If needed having that extra cash helps alleviate some of the stress associated with a loved one being sick.

There is no favorable tax treatment for the birthing of a baby specifically. All of it just falls under any favorable treatment for medical costs.

You are best off saving money in a taxable account with mutual funds that are tax efficient. You want accounts that spin off little capital gains, or bond funds that might pay tax free.

Answer 2

If you have the option of a high deductible health plan you might consider using a High deductible plan with a Health Savings Account (HSA) in the years before the first child is born. You can contribute the maximum into the HSA but don't use the money.

You may decide that in the year the child is born to pick a non-high deductible plan, but because the money on the HSA doesn't expire you can then use the money in the HSA even if you don't currently have a qualifying high deductible plan.