Adoption: 5 financial considerations

By Chris Morris
Chris Morris regularly writes for national outlets including CNBC.com, Fortune and Variety.
Posted on Oct 4, 2018

Adopting a child can be one of the biggest decisions of your life. It can also be one of the most expensive.

The reward of parenthood, of course, is worth so much more than any cost measured by dollars and cents. But adding to your family through adoption isn't something you want to jump into unprepared. With initial expenses that, in some cases, can equal those you'd pay for a four-year college degree, there are a number of things prospective adoptive parents need to consider.1

Adoption types: Costs vary wildly

Adoption is not something you can easily pin to a specific dollar amount. The amount you'll pay for bringing a child into your family will vary tremendously depending on the type of adoption you choose to pursue.

The least expensive — and often the quickest — method is through foster care, where children whose birth parents can no longer take care of them are placed temporarily in homes while waiting to be either reunited with their families or adopted.

As of Sept. 30, 2016 (the most recent figures available), there were an estimated 437,465 children in foster care, according to the Adoption and Foster Care Analysis and Reporting System . Of the more than 243,000 who exited the system, 23 percent were adopted. 2

These adoptions are typically free — or relatively inexpensive, as little as $0 to $2,500.3 There might be some slight up-front expenses, but they're usually recouped through grants and tax credits . But because the average foster child waiting for adoption is between 7 and 8 years old, it's not the first choice of many prospective families.

Private domestic adoptions of children are where costs really begin to fluctuate. This is where, typically working through an adoption agency or an attorney, prospective parents find a birth mother and arrange to adopt her child when it is born, paying her expenses during (and immediately after) the pregnancy.

The average price typically ranges from $20,000 to $45,000 — but that can go up significantly depending on whether you spend money searching for prospective birth mothers, whether the birth mother has health insurance, how early you're paired with the birth mother (since you'll be paying many, if not all, of her living expenses), attorney's fees and more.4

Another option is international adoption of a child. If you're considering this process, you'll also have to factor in travel costs, which could become significant, as it's not unusual to have to visit the country you hope to adopt from several times, often staying for several weeks before the child is born. (Stays of eight weeks are not uncommon in areas like the Ukraine and Colombia, according to the National Infertility & Adoption Education Nonprofit.)5 You'll also often have to stay in the country through the adoption process, which could be another month or two.

Know your finances

If you haven't taken a good, hard look at your finances, this is the time to do so. Find out just how much you have in savings, investments, and cash — and how that stacks up against your monthly bills and long-term debt. ( Calculator: Setting financial goals )

If you are just covering your regular bills and debt payments, you may want to take time to restructure your finances to afford a new member of the household.

For instance, if you're buckling under credit card debt, it's probably wise to pay that off before you start to seriously begin the adoption process.

Start saving for the child early

Financing adoption is like financing home improvement. It always costs more than you've budgeted.

If you've decided on the private adoption route, it could take several years before you're matched with a birth mother. That gives a good bit of time to begin saving for the expenses that will follow.

It's also a good time to adjust personally to what your budget will be like when you have a new child in the house. Cut back on dining out and spontaneous weekend trips. (You're going to be kissing those goodbye for the most part anyway.) The bonus here is that you'll be able to put even more money into your adoption savings, so you'll be better prepared if the match costs more than you anticipated.

As for where to keep that money, avoid the temptation to try to make it work for you. You want to keep it liquid and protected.

"Ninety-five percent of the time, you want to put the money into a savings account," said Ryan Fuchs, a financial planner with Ifrah Financial Services, in an interview. "It's the same concept as an emergency fund for people. If you know for sure you're going to use the money in a two-, three- or four-year time period, you're not going to want to subject that to the inherent uncertainties of the market."

Alternate adoption finances

Timing is one part of adoption you have virtually no control over. And while multiyear waits are common, sometimes a birth mother picks you instantly. You'll need money fast — and your savings might not be adequate. That's why it's critical to have emergency backups ready.

One might be your workplace. Some family-friendly companies not only offer leaves of absence for adoption proceedings, but may also reimburse some of your expenses. (Citizens Bank, for example, reportedly gives up to $23,000 in adoption costs. Ferring Pharmaceuticals will pay back up to $25,000 in costs. And Barilla Italian pasta company gives up to $16,000 in assistance or reimbursement of adoption expenses.)6

Not lucky enough to work at a company that will help out? It's not a bad idea to establish a home equity line of credit at the beginning of the adoption process, as it could get you quick access to cash if you need it, suggested Fuchs.

There is, of course, also the option of borrowing against your 401(k) plan to finance the costs of adopting a child. Most financial planners say this should be a step of last resort, though it's better than subjecting yourself to a high-interest loan.

"It's very common," says Sara Stanich, a New York-based financial planner, in an interview. "Depending on what you have saved for retirement, it's better than funding things with credit cards. Hopefully, once the adoption is over, though, you can accelerate paying yourself back."

If you do have to take out a loan, you might be able to pay at least some of it back with your next tax filing. The IRS allows an adoption tax credit of up to $13,570.7

Costs beyond adoption

Keep in mind that while the financial hurdles on the pre-child side of adoption are intimidating, waiting on the other side are things like diapers, food, and childcare. So don't get too myopic as you focus on the goal of parenthood.

Once you are a parent, you'll need to ensure you're protecting your family in different ways. Make sure you have a will, so there's a clear path of guardianship for your child. Ensure your health insurance is adequate for your whole family — and consider life insurance to provide for them in case you're unable to. And it's never too early to start a college fund.

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Need financial advice? Contact us

This article was originally published in September 2016. It has been updated.

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1The College Board, “Average Published Undergraduate Charges by Sector and by Carnegie Classification, 2017-18.” .

2 Adoption and Foster Care Analysis and Reporting System, “Foster Care Statistics 2014,” March 2016.

3 National Infertility & Adoption Education Nonprofit, 25 Factors to Consider When Adopting From the United States,” July 2014.

4 Child Welfare Information Gateway, “Planning for Adoption: Knowing the Costs and Resources,” November 2016

5 National Infertility & Adoption Education Nonprofit, "25 Factors to Consider When Adopting from the United States,” July 2014.

6 Adoption.com, “8 Companies with The Best Adoption Benefits,” January 2017.

7 Internal Revenue Service, “Topic Number 606 — Adoption Credit and Assistance Programs,” March 1, 2018.

The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own, and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.