Are you thinking about adopting a child? Adoption can be a great way to start a family — or expand an existing one. But it usually comes with significant responsibilities and costs that families need to plan for. Fortunately, there are resources to help your family afford its new addition and lower your out-of-pocket expenses.
Costs Have Skyrocketed
The costs of raising children — from food and housing to education and activities — has skyrocketed. But adopting a child adds significant upfront expenses. The costs can vary widely based on the type of adoption, whether domestic, international or through foster care. Common expenses adoptive parents need to budget for include:
- Adoption agency fees,
- Fees required by foreign countries and immigration processing,
- Birth parent expenses, such as medical and living costs during pregnancy,
- Health care expenses for new additions,
- Home study fees,
- Adoption-related travel expenses, such as airfare, meals and lodging,
- Legal fees and court costs, and
- Post-adoption costs (for instance, post-placement visits and counseling services).
Beware: When adopting internationally, some countries may require adoptive parents to travel multiple times, adding to the overall cost.
Budgeting For a Child
The total cost of adopting a child often exceeds what a family initially expects. It’s important to research the cost ranges to make an informed decision about which type of adoption is best for your family and finances.
Adoption doesn’t happen overnight. Be patient and start saving early. Consider setting up a dedicated adoption savings account and making automatic transfers from your checking account each month. Small, regular contributions can add up over time. You also might decide to direct any windfalls — such as a tax refund or bonus from work — toward your adoption fund.
Financial Resources
The following outside resources can help reduce out-of-pocket costs:
Grants and other assistance. Many nonprofit organizations offer grants with varying eligibility requirements to adoptive families. Well-known examples include HelpUsAdopt.org, Show Hope and Gift of Adoption Fund. Some religious organizations also may provide financial assistance to adoptive parents. Applying for aid can be time-consuming but worthwhile.
Employer-provided adoption assistance. Some employers have programs that reimburse adoption expenses or provide financial support to employees who adopt. Check with your HR department.
Tax breaks. The federal government offers a nonrefundable adoption tax credit to help offset the costs of adoption. It covers most adoption-related expenses, including reasonable and necessary adoption fees, court costs, legal fees, and travel. Expenses incurred before an eligible child is identified (for example, home studies) may also qualify. The credit is available if you adopt a child (other than a stepchild) from the United States or a foreign country. The child must be under age 18 at the time of adoption or physically or mentally incapable of self-care. If adopting from the United States, you also can claim the credit for your expenses for a failed or nonfinalized adoption. Consult your tax professional to understand how to claim the adoption tax credit and maximize your savings.
Important: Employer-provided adoption assistance is generally excluded from taxable income under current law. You can claim both tax benefits in the same year, but you must first claim any allowable exclusion for employer-provided assistance before claiming the adoption credit. You’ll need to reduce the amount of qualified expenses available for the credit by the amount of the exclusion. In other words, you can’t claim both an exclusion and a credit for the same expenses.
Fundraising. Asking friends and family for financial support might feel awkward, but many people are eager to help bring a child into a loving home. Consider hosting events — such as a silent auction or concert — or setting up an online crowdfunding campaign through such platforms as GoFundMe or AdoptTogether.
In addition, families might want to consider borrowing money to cover adoption expenses. Some financial institutions offer special adoption loans that typically come with lower interest rates and more flexible terms than personal loans. Other options include home equity loans and retirement plan loans. Before borrowing against your retirement savings, however, be sure to understand the repayment terms and how it could affect your long-term goals. Be realistic when borrowing money for an adoption to avoid the possibility of future hardships.
Seeking Professional Guidance
Adoption is a significant financial undertaking, but with careful planning and preparation, it’s possible to manage the costs and bring a child into your loving home. Research your options, explore financial resources, and work with financial and legal advisors. In addition to preparing your family for the upfront costs, these professionals can help with financial and estate planning after the adoption is finalized.