Temporary Funding for Adoption

Submitted by Puzzled_Raccoon6830 t3_10q8ino in personalfinance

I’m looking for advice on temporary funding for an adoption (of an infant, just to clarify). Me and my spouse have a decent amount of liquid cash (~$25-30k) but our adoption expenses are expected to run about $35-45k. There is a federal adoption tax credit and I also am fortunate to have an employer to reimburse $10k, which will cover $25k of the overall expenses.

The adoption can unfortunately be very last minute, with basically needing funds the same day we pick up the infant from the hospital and no heads up beforehand, so I need to create additional liquid cash. We expect the adoption to take place at some point in 2023.

I’m debating between a 401k LOAN where I’d pay myself (instead of a bank) about 8% interest or a home equity line of credit. The home equity line will be more involved in terms of closing and potential early payback fees, but also I won’t have to pull funds until the day of. On the other hand, with a 401k loan I have to pull the funds and sit on them, but won’t pay any bank interest. In either case, I’d expect to pay back the loan/line in full within a year.

I was considering an unsecured loan but those would be fairly costly in terms of interest for the amount I’m estimating to pull ($20k).

Any advice on what option would be the best to go with for this temporary funding need?

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Interesting-Dish8894 t1_j6oj7jq wrote

That’s ridiculous. I adopted two babies in the US after fostering them. We got them as soon as they were released from the hospital after being born. Cost was $1500 which was reimbursed from the state and there was a 15k tax credit.

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Puzzled_Raccoon6830 OP t1_j6om2oe wrote

It’s a huge industry, sad for people that want to have a child that can’t have one themselves for whatever reason! About a quarter of foster children end up being adopted, and in that small group only an even smaller group are infants, which is why we didn’t pursue fostering but it’s nice to see it worked out so well for you! Thanks for your reply

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janed329 t1_j6ohfmz wrote

I’m assuming from the post that this is most likely the adoption of a future newborn child?

I know that if you adopt through foster care the costs can be minimal/much less, but it seems this is most likely already planned/set in stone for the most part.

This is an article about grants some are able to get for adoption costs - maybe look into that depending on income limits?

https://lifesong.org/2022/04/adoption-grants/

Good luck!

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Puzzled_Raccoon6830 OP t1_j6oi8i5 wrote

Thanks for the reply! We did look into fostering, in many cases the main objective of the foster care system is to reunite the child with a birth parent, and there are certainly many cases that it won’t happen and an adoptive family can come in, but we decided against that route because of the uncertainty.

We did look into grants but won’t qualify because of income limits (which we totally understand), so we basically only need some stopgap funding for a period of time before we can get the tax credit and employer reimbursement.

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meamemg t1_j6ohij7 wrote

Can you put some of it on a credit card and get the 401k loan and or employer reimbursement before the bill comes due?

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michigoose8168 t1_j6oi4a0 wrote

My friends were able to do that. My friend's mom put it on her card, actually, and acquired both a grandchild and enough travel points to go to France. 😄

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Puzzled_Raccoon6830 OP t1_j6oifsg wrote

We could do a credit card but that would be some crazy interest! The 401k loan would have much lower interest and the interest would be paid to me. The employer reimbursement occurs once it’s legalized finalized which can take ~6 months in New York State, so we’d be looking for some sort of non-credit card solution to avoid a ton of additional costs being piled on. Thanks for the reply!

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meamemg t1_j6oitd9 wrote

Almost all credit cards offer a grace period, where you don't owe any interest, as long as you paid the previous statement in full. See https://www.consumerfinance.gov/ask-cfpb/what-is-a-grace-period-for-a-credit-card-en-47/. So you would have at least 21 days (potentially significantly more, depending on where in the billing cycle you are) to then get the 401k loan and pay off the credit card. No credit card interest involved.

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