Place to save

[swanson719]

So a new twist on an old thread topic. DW and I have finally finished our big EF and are moving on to saving for an adoption. The way adoption works, we would need to provide roughly $15,000 up front, then the adoption tax credit removes all tax liability up to $13,000 and change amortized over 7 years or until the $13,000 has been exhausted. So total out of pocket costs would be $2,000.

The problem we're having is where to save for this adoption. We have our EF in a money market earning 2%. My thought is to put our money into a Roth in conservative to moderate funds and then when the time comes to adopt, pull out the principal. It would be tax free, penalty free, and has a higher return. Aside from the obvious potential drop in principal, mitigated by conservative to moderate funds, is there a downside to this I'm missing?

We don't make enough to simply save for adoption separate from our Roth's, it's an either/or situation. My other thought with this is that as I finish up my college, my pay will drastically increase. If it takes that long to be placed, we could pay out of pocket for the adoption. So by putting money in the Roth, we wouldn't be missing out anything. I just don't see a clear downside to this, though I fear I could be missing the forest for the trees.

[disneysteve]

What kind of timeline are you talking about here? I know you don't know exactly but what's your best estimate?

[swanson719]

Timeline

We're looking to adopt no earlier than mid 2012. The adoption tax credit in it's current form is set to expire before then, so we're not banking on it being there. If I can talk DW into pushing it out until June 2013 when I graduate college, that would be ideal. At that point we would be able to pay out of pocket and savings be a moot point as far as adoption is concerned. I doubt DW will be willing to wait that long.

Alternatively, I'm not completely adverse to taking out a loan at that point either. It would probably prove to be the cheaper option than withdrawing $15,000 from our Roth. $15,000 over 5 years at 6.5% would be something in the $275 ballpark. I could take that out without it affecting our investment allotments, and then when I do graduate college and my pay goes up, just pay it off in a few months at that time. That would also allow us to be a bit more aggressive in our Roth funds as well. I hate to plan on taking out a loan considering our whole goal is to be debt free, so it's not my first option by any means.

[wincrasher]

Timing is something you just can't count on in these things one way or another. What if a kid were available sooner? What if there are resulting legal complications? Or medical expenses?

I think it's risky to do any of this before you finish school and stabilize your employment situation. You surely will have unforeseen expenses. Also, beyond the tax break, some employers actually subsidize this kind of thing. So that could be a factor in a change in jobs.

[swanson719]

My employment situation is highly stable. I'm employed by the federal government, on a contract for the next six years, at which time I can renew it for 10 more years and retire at the end of 20 years. My pay is pegged to my schooling - if I finish a bachelors my pay raises a minimum of $1,500 a month with raises built in every 2-3 years. I will finish my associates next spring. Upon transfer to a university, school literally becomes my job. The only thing that changes from a work point of view is that instead of going into the office each day, I would go to class each day. I will maintain all pay and allowances, maintain health and life insurance, continue to earn paid vacation, and continue to have access to all other benefits. That time in college will also count towards my retirement time. It's all in my contract. It doesn't get any better than that.

Uncle Sam provides free legal services, and subsidizes up to $2,000 in filing fees per child, up to $5,000 per fiscal year. Meaning we will have no out of pocket legal fees whatsoever. We also have 100% free medical care, with no deductible and no co-pay, which will be extended to an adoptive child.

We could not take a child sooner because DW is pending a transplant for this fall. She has to have a minimum of a year recovery before she would be granted a clean bill of health and cleared to be around kids on a regular basis. That in itself puts us in the fall 2011 time frame at the earliest, if everything went smoothly. Once again, all costs associated with the transplant - meals, lodging, travel, and medical - are all covered through my job. We pay upfront, and get reimbursed so long as we provide receipts. No expenses whatsoever.

I don't know what other unforeseen expenses there could be. Anything not considered normal living expenses are covered through my job. Legal, medical, dental, etc. It's pretty much the best job in the world, and I love it. US Army all the way.

[wincrasher]

I thought I had the best job in the world!

Admitedly, it would be more fun to solve my conflicts with heavy firepower, but instead I use spreadsheets

[jIM_Ohio]

Here's my thought-

Don't do something to get a tax credit which might go away in 4 years.

I realize it might expire
It also might not.

Don't rush this process because of a tax credit. If you are willing to spend 15k and adopt by all means do it. If it makes sense to pay 15k this year and adopt this year, do it.

If you will not adopt until 2012, then save money now for the adoption and do it in 2012 because your life in 2 years will be different (college graduate, more free time for kids). If I told you I was going to go out and buy a house because the fed government will give me $6500 for a tax credit most on this board would call me crazy.

I need a house, but the one I have is good enough.
Don't do something in a given timeline because of a tax incentive. Do it because it makes sense for that time in your life. If you are busy with school, probably not fair to kid to add a child to your life.

[swanson719]

We have no intent of adopting at that time simply because of the tax credit. That has nothing to do with the adoption, aside from the financial end. We both want to adopt sometime in the 2-3 year time frame, give or take a little. If I had to pay $40K to adopt, I would. It has nothing to do with the money. We're just trying to figure out the best way to save to pay all the expenses associated.