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Affording Adoption

If it weren’t for her day job, Anna Sinatra wouldn’t have three sons.

“Before helping any client with a financial plan, I first have them step back from their finances and think about where they want to be and what they’d regret not doing,” says Anna, a Schwab wealth strategist based in Phoenix.

In taking this approach to their own financial planning three years ago, Anna and her husband quickly realized they were eager to grow their family beyond their then 4-year-old biological son. However, when the Sinatras began researching adoption options, they were shocked by the cost. Of adoptions finalized in the past two years, domestic newborn adoptions cost an average of $40,000—and international adoptions even more—according to Adoptive Families, an online resource for navigating the adoption process and its aftermath.

“We almost didn’t pursue it because it just seemed too expensive,” Anna says. “What we didn’t realize at the time is how many benefits and resources there are to help with the expense of adopting a child.”

Sources of assistance

In fact, the cost of adoption can vary widely, depending on a child’s age, health, nationality and other factors. Although some adoption fees are standard, “every adoption is subject to its own unique circumstances, which makes it difficult to know up front precisely what your expenses will be—although some agencies put a cap on their costs—which can help tremendously,” Anna says.

Fortunately, there are a number of adoption benefits that can offset some—if not all—of the costs, says Hayden Adams, CPA and director of tax and financial planning at the Schwab Center for Financial Research. For example, many nonprofit adoption agencies base their fees on a prospective parent’s income—the less you make, the less you’ll pay (see “Making the grade,” below). And numerous private foundations offer grants or loans to support adoption (see “Who can help,” below).

Philanthropic resources aside, there are two major benefits that can be used simultaneously to help defray the cost of adoption:

  1. Employer assistance: Many companies support parents by providing a lump-sum payment for qualified adoption expenses. Such benefits often renew annually—meaning if the process takes even a day more than a year, you may be eligible for the benefit not once but twice—and are not considered income by the IRS (up to $13,810 per child in 2018).
  2. Tax credit: The IRS provides a federal tax credit of up to $13,810 per child in 2018 for qualified adoption expenses not covered by your employer, including attorney fees, court costs and even travel expenses (though not for those related to the adoption of stepchildren). Any credit in excess of your tax liability may be carried forward for up to five years. “In general, tax credits are better than deductions, so this is a great benefit that can meaningfully reduce the cost for many people,” Hayden says.1


Members of the military may also be reimbursed for up to $2,000 in qualified adoption expenses per adopted child per calendar year. Certain states also offer tax credits to adoptive parents, though the benefits are sometimes restricted to those adopting from that state’s foster-care system.

Adoption is only the beginning

Although considerable, the up-front costs are a one-time hit. Parenthood, on the other hand, is an ongoing expense.

Robert Aruldoss, a senior financial planning analyst at the Schwab Center for Financial Research, worked with several adoptive couples early in his career. In such cases, he turned to what he calls “Financial Planning for New Parents 101,” whose syllabus includes:

  • Changing beneficiary designations.
  • Establishing or replenishing emergency funds.
  • Purchasing or increasing life insurance.
  • Saving for college.
  • Updating wills and trust documents.


“Adoption is a major life event and thus an ideal time for parents to revisit their overarching financial plan and establish or update an estate plan,” Robert says (see “Your adoption checklist,” below).

Beyond finances

That said, Anna knows from personal experience that the emotional dynamics of adoption transcend mere financial considerations. “Given the level of uncertainty surrounding almost every aspect of adoption, it’s critical for prospective parents to have a solid understanding of not only what’s involved but also the hurdles that are likely to arise—and to have a solid support system to help them through any rough patches,” she says.

Today, Anna enthusiastically describes her household as “controlled chaos” since the arrival of her son’s now 2-year-old adopted twin brothers. “It’s everything we wanted, and I deeply encourage people not to let sticker shock—or a lack of information—deter them from pursuing their dreams.”


1The adoption income exclusion and tax credit are indexed to inflation and can change annually. In 2018, the credit is reduced for those with income over $207,140 and is phased out completely for those with income over $247,140.

What You Can Do Next

Need help thinking through the financial aspects of adoption? Call 800-355-2162 or stop by your local branch to discuss your goals with a Schwab financial consultant.

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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

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The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

Schwab wealth strategists are employees of Schwab Private Client Investment Advisory, Inc., a registered investment advisor and an affiliate of Charles Schwab & Co., Inc.


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