Are you thinking about adopting a child? That’s wonderful!

Parents thinking about adoption may be very anxious about the financial aspects of the process. I’d like to take some of the mystery out of it, so parents don’t unnecessarily delay for financial reasons.

Here are four financial action steps to help prospective adoptive parents feel financially prepared:

1. Estimate Expenses

Is adopting a child a dream or something you are sure you want to do? If you are serious, put a number on it to make it real.

Costs vary widely, depending on your area and the type of adoption chosen. Here are some broad estimates:

  • Public and/or Special Needs: 0 – $2000
  • Independent Adoption: $5000 – 25,000
  • Domestic Agency: $7,000 – 30,000
  • International: $15,000 – 30,000

What makes up those costs?  Expenses could include but are not limited to:

2. Remember Resources

There are many financial resources which may be available to help you complete the adoption process.

Employer Benefits may or may not be provided by your employer. Check the policies with your human resources department. Paid Time Off (PTO) to take care of a new child may be offered as an alternative to maternity leave.

Some employers also provide partial reimbursement of adoption expenses. Eligible benefits may include adoption placement, legal fees and hospital expenses (while both the birth mother and infant are in the hospital).

Employer benefits will probably not completely cover all of your costs, but every bit helps. One company policy I reviewed reimbursed eligible expenses at 80% up to a maximum of $2,500. In general, requests for reimbursement are submitted after the adoption is finalized.

The Adoption Tax Credit is a credit of up to $13,840 (2018) for qualified expenses paid to adopt an eligible child. This is very valuable in comparison to other tax benefits.  For one thing, tax credits are much more valuable than tax deductions because they come off the bottom line. Also, the adoption tax credit is a refundable credit, meaning it is available even if you owe no tax for the year.  The adoption credit would be applied to your tax return for the year in which the adoption is finalized. (Source:

Income limits do apply to the adoption tax credit. The credit is reduced if modified adjusted gross income (AGI) is more than $207,580 (2018); the credit is unavailable if modified AGI is $247,580 (2018) or more.

Adoption Grants may also be available from charitable, community and religious organizations. Some may be very competitive, but still worth considering. I have seen some grants for $1000 available.

Complete applications for adoption grants after the home study, but before the adoption is finalized. Here are examples of sources for adoption grants:

State subsidies are monthly maintenance payments which may be provided by your state to help meet the special needs of caring for handicapped and hard-to-place children and to encourage and facilitate their adoption.  Children in the care of public agencies or foster parents may be eligible.  Applications for state subsidies must be approved prior to adoption finalization.

3. Find the Funds

Now that you’ve estimated the expenses needed for your adoption, where will the funds come from?

Parents should plan to save for this process, and it is great if you can pay for all of the expenses from your liquid savings or current income.  However, keep in mind that you may not need to come up with all of the money needed in one lump sum.  You may be able to spread out the expenses over six months or more; at the start and completion of the process.

Short term loans may also be appropriate.  Although I don’t generally recommend debt, a loan from your 401(k) or a home equity loan may be an option because you may be able to (at least partially) pay yourself “back” with the tax credit, reimbursement from your employer or an adoption grant.

4. Plan and Protect

There are similar financial planning considerations for every growing family:

Changes to budget and cash flow.  A new child will result in change to the family budget.  Childcare is usually the biggest expense, but income may also be reduced (at least temporarily) if one parent decides to stay home.

Insurance review.  Adoption is one of the “qualifying events” which allow you to make changes to your health insurance policy (ie., adding a dependent).  It may also be time to increase your life insurance.

College savings.  Now may be the time to start a 529 College Savings Plan for your child.

The adoption process is an exciting (and slightly scary) time. Preparing financially can help you feel prepared and ready to focus on the newest member of your family. Good luck!

Changes in tax laws may occur at any time and could have substantial impact upon each person’s situation. You should discuss tax or legal matters with the appropriate professional.

Sara Stanich

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