If you are a current foster care parent or you hope to foster one or more children in the future, your financial planning needs are likely different than those of non-foster parents. Becoming a foster parent in any state requires meeting strict eligibility requirements, including being able to demonstrate that you have the financial wherewithal to provide for the care of the child or children you hope to bring into your home. While foster parents receive subsidies from their states, these subsidies are often insufficient to meet the entirety of the foster child’s needs.[i] Understanding the potential financial implications that come with foster parenting can help you create and adhere to a plan for managing your finances.
Planning Considerations for Prospective Foster Parents
While each state in the U.S. has established eligibility criteria prospective foster parents must meet, there is unfortunately not a single set of rules or standards for financial fitness. Prospective foster parents should seek to understand their states’ guidelines and requirements before embarking on the application and screening process. In general, to be approved as a foster parent from a financial standpoint, an applicant must be able to demonstrate their ability to pay for ongoing expenses including food, clothing, school or daycare expenses including things like field trips and extracurricular activity fees, added utilities, and more. Prospective foster parents must also be able to pay for required pre-screening expenses including background checks and health exams.[ii]
Financial Planning Best Practices for Foster Parents
Whether you are a current or aspiring foster parent, the following suggestions may help you manage your finances more effectively and may help you feel more prepared to meet the day-to-day financial stresses that can come with fostering children.
- Develop (and stick to) a budget. If you plan to go through the application process to become a foster parent, the state will likely require you to provide evidence of your financial responsibility. This includes your ability to pay bills on time, meet day-to-day expenses, save for retirement, and provide for current dependents.[iii] If you do not already use a budget, create a monthly budget to itemize your fixed and variable expenses and calculate whether the amount you have remaining is sufficient to care for a foster child. If not, work to trim your expenses or increase your income so you can improve your financial standing in the eyes of the state.
- Create an emergency savings fund. Unexpected expenses can arrive at any time for anyone. Where foster children are concerned, it is important to have the means to deal with such expenses without having to sacrifice in other areas. Create and add to your emergency fund so that you are prepared to handle life’s financial curveballs without having to incur debt or withdraw money from retirement accounts or other longer-term investments.
- Plan ahead for tax season. Foster parent subsidies from government agencies are typically not considered taxable income, but can be in some cases.[iv] In addition, foster parents’ circumstances and the child’s situation often dictate whether the foster parents can claim the child as a dependent and whether, and to what extent, other tax deductions and credits are available.[v] Planning ahead and discussing these issues with a qualified tax professional can help avoid any unpleasant surprises at tax time.
- Work with a financial professional. Don’t be afraid to ask for help from a financial professional. Prospective foster parents may benefit from professional guidance to help them shore up their finances before applying for approval from the state. Financial professionals can also work with current foster parents, helping them navigate the added financial challenges fostering can bring while keeping an eye on long-term planning goals.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
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