Here Comes Baby! The Baby's Future

One of the greatest wonders of a newborn is that a whole world of opportunity is open for your baby to grow into. And one of the greatest challenges you face as a parent is keeping the world open to him or her, no matter what happens along the way.

Education
When your baby is just learning to smile and grasp your finger, college education may seem too far away to think about. But to fund your child's education, you'll need to amass a large amount of money. If you plan ahead, you'll provide your child with a much wider array of education options.

In the year 2000, tuition for a bachelor's degree program, including housing, at a public university averaged between $20,000 and $50,000. A bachelor's program at a prestigious private university may cost more than $150,000. By the time your child is ready for college, it will be much more than that.

Start a college fund as soon as you can for your child. A small amount invested 18 years in advance will grow to much more than a larger amount saved a year before it's time for college.

Coverdell education savings accounts
You can contribute up to $2,000 a year to a Coverdell education savings account for your child, as long as your income is under $190,000. Each child can receive a contribution of only $2,000 a year. So if Grandma puts in $2,000 this year, you won't be able to contribute until next year. These accounts can be opened with any financial institution and invested in anything from savings accounts to mutual funds.

529 plans
A 529 plan is an investment for a child's education that is put aside in a mutual fund and grows in the account free of federal income tax. The money is withdrawn from the plan when the beneficiary is ready for college and used to pay tuition and other school related costs.

The 529 account does not affect the beneficiary's eligibility for financial aid. It remains an asset of the account holder and not the beneficiary. These accounts do have strict limitations on what they can be used for, including tuition, fees, books and equipment required for class. The money may be used for room and board only if the beneficiary attends school at least half the time and the amount is dictated by what the educational institution uses to compute the cost of attendance.

An investor can start a 529 account for any child, related or unrelated. The investor can change the beneficiary at any time. So if you start a 529 for one of your children who later decides not to attend college, you can designate that money to be used by any other college-bound child.

The amount you can contribute to a 529 funds for a child differs from state to state, but they can be as much as $265,000.

Other financial planning
The variety of investment tools that you can use to save money for your child's future is too large to cover here. But it is important to understand the basic philosophy of saving for your child's long-term future. Put simply - a little goes a long way. Save anything you can now and your child will benefit greatly from it in the future.

Wills
Though hard to discuss and think about, there is the possibility you will not be able to raise your child because of your unexpected death. It is important to update your will and provide for the well being of your child in case something happens to you. A will allows you to designate who will receive your assets and, more importantly, who will be the guardian of your child.

If you die without a will, the government makes these decisions for you. Though this will be done with good intentions, government officials will not have the background and understanding of your family's individual circumstances to make as informed a decision as you can. An estate lawyer can help you work through the intricacies of creating a will.

A will distributes assets among beneficiaries, but if you want particular items to go to specific people, those need to be listed in a separate testamentary letter which is mentioned in your will.

Be sure to update your will on a regular basis. Life changes quickly, especially with a growing child. You want to be sure your will still fits your needs.

Life insurance
While contemplating your own mortality for writing a will, you might also want to purchase life insurance. Life insurance can provide for a child in case both parents die, and can provide for a spouse or other caregiver so that he or she won't have the sudden and overwhelming financial burden of raising a child alone.

The size of the life insurance policy that's right for you depends on a lot of factors. Try to figure out how much your family would need to continue their lifestyle if you were to pass away. Many experts suggest six to ten times your yearly salary. Take into consideration the following:

• The usual expenses of your family (including your expected expenses for your new baby)
• Large amounts of money needed in your child's future - college costs, for example
• How much income you usually provide for your family.
• The extra expense of raising a child alone (childcare, domestic help, etc.)
• Your assets and investments that will be available to pay these expenses. That will reduce the amount of life insurance needed.

There are many different types of life insurance, but two of the most common are term insurance and whole life insurance. Term insurance is like auto insurance. You pay a premium, and if you die during that term, your beneficiaries will be paid. The rates increase as you get older because your chance of death is higher. Whole life insurance guarantees a level premium over your whole life. A whole life policy accumulates cash value, but to tap that value you must cancel the policy or borrow against it. When you die, the insurance company pays only the face value of the policy, not the face value plus the cash value. If you cancel the policy, you will be taxed on the amount you receive less the premiums you have paid.

Talk to an insurance agent for more specific information about life insurance plans and which one is right for you.