Raising children comes with meaningful financial responsibilities, from education and healthcare to everyday household expenses. While the tax code does not eliminate these costs, there are several tax-smart ways families can plan ahead and better manage some of the financial impact over time.
By using tools such as education savings accounts, pre-tax healthcare funding options, and thoughtful withholding adjustments, families can take a more proactive approach to organizing and planning for these ongoing expenses.
Here are a few key areas to consider when looking at the tax side of raising children.
529 education savings plans are a great way to kick off the baby’s savings for future educational costs. These plans offer investments that grow tax-free as long as the funds are used to pay for eligible education expenses (including elementary and secondary tuition). States administer these plans, but that doesn’t mean you are stuck with the plan available in your home state. Feel free to shop around for a plan that works for you. Starting to save early, maximizes the amount of tax-free compound interest you can earn in the 18+ years you have before kids go to college.
Bonus tip for family and friends: Anyone can contribute up to $19,000 to the plan in 2026 for each child! In addition, there is a special provision for 529 plans that allows five years worth of gifts to be contributed at once — a great estate-planning strategy for grandparents.
Having a baby is expensive. So is watching your kids grow up! Fortunately, there are ways to be tax smart in covering the predictable medical and dental expenses. The first thing to do is try to pay for as many out-of-pocket expenses with pre-tax money. Many employers offer tax-advantaged accounts such as a Health Savings Account (HSA) or a Flexible Spending Account (FSA). So check this out and fund these accounts as much as possible. And while it’s more difficult to claim medical expenses as an itemized deduction, it’s impossible to do so if you don’t keep receipts.
Every year, you need to review your tax withholdings and this is especially important if you have dependents. Remember, the birth of a child brings new tax breaks, including a $2,000 Child Tax Credit, along with the Child and Dependent Care Credit for childcare expenses. These credits can be taken advantage of now by lowering tax withholdings and increasing take-home pay to help cover the cost of diapers and other needs that come with babies and children. On the other side of the coin, these benefits fall away as your kids grow older. The Dependent Care Credit is for children under the age of 13 and the Child Tax Credit is available for kids under the age of 17. So plan accordingly.
Having a kid can be expensive. If you are planning for the financial responsibilities that come with raising children, proactive tax planning can help you stay ahead of changing expenses and make more informed decisions throughout the year.
Schedule a tax review today to make sure you’re getting all the child tax breaks you deserve! Alloy Silverstein’s advisors work with families to help organize tax strategy around education planning, healthcare costs, and overall household tax efficiency. Reach out to our team to discuss your situation and plan ahead with confidence.
