Financial advisor’s talk of the 4 most important money tips for parents with young kids

Parents with young children or those expecting a child may wonder, «What financial steps should I take to ensure my family’s success?»

According to Rianka Dorsainvil, a certified financial planner and co-CEO of 2050 Wealth Partners, here are four of the most important factors to consider. Dorsainvil also serves on the CNBC Advisor Council.

Set aside money for future education expenses
There are tax advantages to saving for your child’s education.

The 529 plan, which allows parents to invest money for higher education and other costs, is one of the most popular. The investment grows tax-free, and withdrawals are tax-free as long as they are used for «qualified» expenses.

Enrollment in a college or university, books, computers, and room and board are all examples of qualified costs. They also include up to $10,000 in tuition at a private K-12 school per year and up to $10,000 in student loan repayments over the course of a person’s life.

Invest on behalf of your child
Custodial brokerage accounts allow parents to invest money for their children without having their funds sitting in cash at the bank.

UGMA and UTMA accounts, for example, are held in the name of a minor but controlled by a parent until the minor reaches legal adulthood. Depending on the state, this ranges from 18 to 21 years old. Uniform Gifts to Minors Act and Uniform Transfers to Minors Act are the acronyms.

One caveat: Once the beneficiary reaches the age of majority, the money is theirs. Gifts and transfers made to these accounts are irreversible. The money can then be used for whatever purpose the beneficiary desires.

An estate plan should be updated or created
A common misconception is that wills and other estate documents are only necessary for the wealthy; however, Dorsainvil believes that any parent should have a will.

A will is a legal document that expresses your wishes regarding your possessions and other assets in the event of your death.

This is especially important for parents with minor children, as there is a guardianship clause in wills that answers the question of who the parent would want to have physical custody of their children if something happened to them, according to Dorsainvil.

Make use of a dependent care account for flexible spending
Care for dependents Flexible spending accounts are a tax-favored way to save for annual child care costs.

Dependent care is provided through the workplace. FSAs allow families to save up to $5,000 in pretax funds per year for day care, after-school programs, work-related babysitting, summer day camps, and other expenses.

For parents to qualify for the tax break, dependents and programs must meet a variety of criteria. Children must, for example, be under the age of 13; programs such as piano or dance lessons, overnight camps, and kindergarten tuition are not eligible.

Because you don’t pay tax on contributions to a pretax account, they reduce your taxable income.