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Adoption Tips for Those Planning on Adding to Their Families

Mom kissing babyAccording to the U.S. Department of Health and Human Services, the costs of adopting can be anywhere from a few hundred dollars to more than $40,000, depending on the form of adoption you select.

Biz Times' recent article, "Getting your finances ready for adoption," says that in order to get your finances ready for adoption, you have to do your homework and be certain the price and processing work of adoption won't wipe out your plans for essential financial goals like retirement, saving for your future child's education, and higher daily living expenses with a new family. Begin with these tips:

Examine your finances first. Work with qualified financial or tax professionals to review if you will be able to manage adoption costs from savings or grants you don't have to pay back. Starting a family is a major overall financial commitment—no matter what strategy you choose to build yours.

Understand the tax benefits of adoption. The federal government has tax breaks for adoption, but make sure you study and follow the rules. The IRS says that tax benefits for adoption include both a tax credit for qualified adoption expenses paid to adopt an eligible child and an exclusion from income for employer-provided adoption assistance. The credit's nonrefundable, so it's limited to one's tax liability for the year. Any credit in excess of tax liability can be carried forward for up to five years. In addition, adoptions of special needs children may qualify for special tax treatment.

Look into workplace benefits. A recent study showed that about 12% of U.S. employers offered a financial adoption benefit in 1990, compared to 52% now. See if your employer offers adoption benefits and factor those benefits into your overall financial plan.

Gauge your legal costs. This is a legal process, and based on the type of adoption process you pursue, you'll need to consult with an attorney to make sure your application is in order and your rights are protected.

Networking and education. A huge leg up on the entire process is getting involved with support and planning groups for parents of adopted kids and those who are planning to adopt.

Sound financial planning to support your adoption process will help give your new family the best possible start.

Reference: Biz Times (May 3, 2016) "Getting your finances ready for adoption"

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Affording Adoption with the Help of Tax Credits

Bigstock-people-happiness-adoption-an-91832078November is National Adoption Awareness Month. If you're considering adoption, you know that it will change your life in many ways. And you'll need to prepare for many of these changes – including the financial ones, because adoption can be expensive. The average U.S. adoption costs between $8,000 and $40,000, while the range for international adoptions is $15,000 to $30,000, according to the Child Welfare Information Gateway, a U.S. government-funded adoption information service.

The Middlesboro (KY) Daily News reports in "Thinking of adopting? Be prepared for expenses," that given these numbers, you might worry that you'll have a tough time paying for an adoption. You can, however, get financial help from some tax benefits. These include a credit for qualified adoption expenses and an exclusion from your taxable income of employer-provided adoption assistance.

The maximum tax benefit you can claim for this year is $13,400, which is reduced if your modified adjusted gross income (MAGI) exceeds $201,010 and is completely phased out if your MAGI is $241,010 or more. The adoption tax credit is nonrefundable, so it's limited to your tax liability for the year.

For example, say that you pay $13,400 in qualified adoption expenses in 2015, and your employer reimburses you for $3,400. If you meet the MAGI guidelines, you can exclude $3,400 from your gross income for 2015 and can claim $10,000 ($13,400 minus $3,400) for the adoption tax credit.

Remember that tax credits reduce your income tax liability dollar-for-dollar. Although these tax benefits will reduce your overall cost of adoption, you still have to find the money to defray all of the expenses of the adoption. The first step is to plan ahead, and as far ahead as you possibly can. The adoption process frequently takes a year or more, so you'll have some time to prepare. Select an adoption agency that best meets your needs, and get an estimate of the total costs. Once you have this, you can determine how to meet these costs.

Don't take out a loan from your 401(k) because a 401(k) loan will likely reduce the account's growth potential—which you need for retirement. There's also a loan from a bank, but that's still another debt to have to pay. If you were to wait for, say, two years, you might put away a specific amount every month in an "adoption fund" in an investment that's highly liquid and offers significant preservation of principal.

Adopting is wonderful, and a child will change your life. Planning ahead and carefully considering your options for paying for the adoption can help you do so with financial sense, now and in the future.

For more information about estate planning, please visit my estate planning website.

Reference: Middlesboro Daily News (November 4, 2015) "Thinking of adopting? Be prepared for expenses"

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