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10 Important Investments Before Having a Baby

How to save for a baby.

Everything changes when you have a child. Pre-planning your finances before a baby arrives can make a difference later. A USDA report says middle-income, married parents are projected to spend $233,610 raising a child born in 2015. That's about $13,000 per year annually, with housing and food accounting for 47 percent of total costs, followed by child care and education costs at 16 percent. Here are some investing strategies to make raising -- and saving for a child -- easier.

Sign up for dependent care flex spending account.

These accounts can be used for preschool, day care, summer day camp as well as before- and after-school programs for children younger than 13. The maximum amount an individual, or married couples, who have a combined limit can contribute is $5,000 a year. "It's a great way to pay for child care with pre-tax dollars that can save you, depending on your income, anywhere from 15 to 50 percent," says Chantel Bonneau, wealth management advisor for Northwestern Mutual in Los Angeles. "It's pretty substantial."

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Draft a will.

Having an estate plan isn't just about spelling out how assets should be distributed after death, but deciding who will be the guardians of their child in the case the parents prematurely die, says Paul Jacobs, CEO of Palisades Hudson Financial Group in Atlanta. "Children of parents who die without wills often are appointed to guardians by local courts," Jacobs says. "Rather than letting a judge decide who would take custody of your children, it's much better to spell out your wishes in your will."

Buy term life insurance.

Brent Leavitt, a certified financial planner at Battle Born Financial Advisor in Pahrump, Nevada, says having 10 to 20 times your income in insurance is a must when you have children. "Purchasing term life insurance will ensure you get enough protection without breaking the bank," he says. Leavitt says a friend from high school became a widow at 33 while her husband was going to medical school and didn't have life insurance. "After putting her own education on hold for her husband, she now has to start from scratch," he says.

Purchase short-term disability insurance.

If you are considering having a baby, purchase short-term disability before conceiving just in case there are complications, says Ryan Bayonnet, a certified financial planner at Hyland Financial Planning in Green, Ohio. "Short-term disability covers most of your income for six to eight weeks while you are recovering," he says. "That could help keep your family out of debt if some complication happens and you are forced to take additional time off of work."

Save for retirement first, college second.

"Make sure you are putting away for your retirement before you save for your child's college income," Craig Bolanos Jr., CEO of Wealth Advisor in Inverness, Illinois. "If mom and dad aren't financially healthy, there's no way the child is going to have the opportunities long term." Bolanos suggests investing in a diversified basket of low-cost index funds. "If you find having a child is straining your finances, consider lowering your 401(k) deferral percentage, but don't lower to a rate that is less than employer match," he says.

Set up a testamentary trust.

This can be done inside of a will or as a separate document where the trust is established at the time of death of the last surviving spouse, where the parent can dictate how the money is given to the child. Options include a fixed amount, a percentage and an age requirement. "It gives you control of how much money your children get, when they get it and sometimes there are certain provisions," Bayonnet says.

Look at a 529 account.

A 529 plan -- named for Section 529 of the federal tax code -- is a college savings account. There are two types, prepaid tuition plans and college savings investment plans. They can be sponsored by a state, state agency, directly sold, advisor sold or a national plan. Prepaid plans lock in current tuition costs while savings investment plans offer more flexibility to pay for additional expenses. You don't have to save in your state's plan, but see if your state offers residents a tax reduction for contributing to a 529 plan. Also, review all plan fees.

Understand how UTMA and UGMA accounts work.

Bolanos recommends grandparents and parents avoid using Uniform Gift to Minors Act and Uniform Transfer to Minors Act custodial accounts because it can count as income when applying for college financial aid. "I still have old-school financial advisers and grandparents who use it, but it's a big no-no," Bolanos says. "It doesn't work well on FAFSA forms."

Get a Coverdell Education Savings Account.

If your modified adjusted gross income is less than $110,000, or $220,000 if filing a joint return, you may be able to create a Coverdell Education Savings Account. Although some parents use it for college savings, Bolanos usually only recommends it for parents who want to save for parochial school, because of the low investing threshold. "It allows you to invest in any security, so you aren't selecting from a prefabricated menu from a 529 plan sponsor," Bolanos says.

Invest in a Roth IRA.

Any type of retirement fund, from a 401(k) to a traditional IRA, doesn't count as money toward your FAFSA form when your child is applying for college funding, Bolanos says. "With Roth IRAs you can pull the money out, not get the 10 percent early withdrawal penalty, and use your contribution to pay for your children's college," he says. "Assuming you are already taking advantage of the full company match with your employer's 401(k), then it makes sense to fund the Roth IRA next so you can withdraw your principal contributions at any time for any reason without paying taxes on it."

Dawn Reiss is a Chicago-based freelance business and finance reporter at U.S. News & World Report. An award-winning journalist, her work has appeared in dozens of national outlets including Time, Time.com, Fortune.com, USA Today, The Atlantic, Reuters, AFAR, Travel + Leisure, Chicago Tribune and Civil Eats. She spent four months driving to every NFL city in the country for The Sporting News and has worked as a staff writer at the Dallas Morning News and St. Petersburg Times. She served as president of the Chicago Headline Club, the largest Society Professional Journalist chapter in the country, has taught magazine reporting at DePaul University and served as managing editor of several magazines. She's a 2016-17 Social Justice News Nexus Fellow at Northwestern University, a 2017 Reynolds Week Fellow for business journalism and a member of American Society of Journalists and Authors. You can follow her on Twitter, Instagram, find her on the Web or email her at dreiss100@gmail.com.