How Can I Help Make Adoption More Affordable?

Great question. After all, November is National Adoption Awareness Month.

If adoption is something you are considering, did you know stateside adoptions cost anywhere between $8,000 and $40,000? What about international adoptions? They run between $15,000 and $30,000. 

These number are according to the Child Welfare Information Gateway, a U.S. government-funded adoption information service.

Given these numbers, you may be concerned about how you will meet this cash call.

Fortunately, there is some financial relief in the form of some tax credits, including a credit for qualified adoption expenses and an exclusion from your taxable income regarding any employer-provided adoption assistance.

This was the subject of a recent article in the Middlesboro (KY) Daily News titled “Thinking of adopting? Be prepared for expenses.”  

The maximum tax benefit you can claim for this year is $13,400. However, this 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 is limited to your tax liability for the year. 

So, how does this work?

Say 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: 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.

What should you do?

According to the article, the first step is to plan ahead as far as possible.

Why?

The adoption process frequently takes a year or more.

While you are in this planning stage, select an adoption agency that best meets your needs.

Once you get an estimate of the total costs, then you can evaluate how to meet them. 

By the way, here are some practical pointers:

• Do not take a loan from your 401(k). Why? Because a 401(k) loan will likely reduce the account’s growth potential on the funds you will need for retirement.
• Do not take a loan from a bank. Why? That is yet another debt you will need repay.
• Do considering saving for the adoption costs each month in a specific highly liquid investment with guarantees on the protection of the principal. It may take you a few years, but you will not being going "backwards" financially right out of the gate. 

Adoption is wonderful for the child you will be adoption and he or she will change your life forever. If you carefully plan ahead and consider your funding options, then you will be on a more solid financial footing when you assume the full financial responsibilities of parenting.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there. 

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