Financial Resource Center

Money Management

Grow Your Family: Financing an Adoption

by Nicole Sandler / May 13th, 2013

The cost to adopt a child can be staggering. According to statistics published last year by the U.S. Department of Health and Human Services, more than 90% of international adoptions cost more than $10,000. Domestic adoptions are generally less costly, yet the funds necessary to make the dream of adopting a child come true still represent a barrier to many families. Before you give up hope, find out how numerous families have successfully found ways to finance adoptions. Conventional borrowing strategies, coupled with more creative ways to save the necessary money, often pay off. And, as most adoptive families will tell you, the financial steps and sacrifices they made along the way were worth every penny.

Conventional financing options

A smart way to begin is to create a comprehensive budget, paper or electronic. Take a careful look at your family finances to first determine how much money you can set aside for adoption costs. If you find that your family budget and acquired savings do not align with the money needed to pay for an adoption, you'll need to supplement. In this case taking out a loan or applying for a grant may be the next step. A good place to start is your credit union to see what lending resources it can offer. Or consider meeting with a financial planner who can help you determine if it's feasible to tap other sources, perhaps home equity, life insurance policies, or pension plans. Your credit union might have a planner on staff who can help, or be able to refer you to an affiliate. Families often use a range of assets including savings accounts, as well as credit, to fund an adoption. Adoption-specific loans are available—they simply require some research. Examples include A Child Waits, Pittsfield, Mass., for international adoption loans up to $10,000, and the Oxford Adoption Foundation Naples, Fla., which provides interest-free loans for the first three years. The National Adoption Foundation, Overland Park, Kan., is another organization that offers adoption loans, along with a wealth of tools to help you navigate the process.
If you decide to borrow money for an adoption, work only with a known and trusted lender.
Ken Eaton, principal at Stepp & Rothwell Inc, a financial planning firm in Overland Park, Kan., is an experienced financial planner and an adoptive father. He speaks candidly based on his personal experience. "If you do decide to borrow money for an adoption, get all of the terms in writing first. Make sure you know the true cost of the loan, including any application fees, processing fees, and early termination fees," he cautions. "If the lenders try a bait and switch tactic or add fees when you finally come to the point of closing on the loan, don't let your emotions get the best of you." Many adoption organizations also provide a list of grants, typically in the $2,500 range. The National Adoption Foundation's grant program, for example, is open to all legal adoptions—public or private, domestic or international—and there is no income requirement. For other adoption grant options check the websites for Gift of Adoption and HelpUsAdopt.

More creative ways of financing an adoption

Speak to parents in any adoptive family about how they financed their adoption and you'll find that creative solutions often factored into the equation, from fundraising and hosting benefits to taking on second jobs, taking out second mortgages, and cutting back on popular family traditions such as holiday gift exchanges or annual vacations. Most families will go to great lengths to ready their finances. Restructuring the family budget to eliminate nonessential expenses such as dinners at restaurants can make a difference. Small sacrifices can add up to significant savings. You might consider saving money by raising homeowner and automobile insurance policy deductibles, negotiating better phone or Internet rates, and even clipping and using coupons.
Adoption expenses that qualify for the tax credit include "reasonable and necessary" adoption fees such as court costs, attorney fees, and travel expenses.
Perhaps not so creative, but certainly a practical strategy for financing an adoption is to wait to start the process until you can afford it, says Eaton. "My advice as a financial planner is to sit down and determine how much a child will cost your family every month. Then start setting that amount aside, including any loan payments that you think you will need to make, before you apply," he says. "If you can save that amount of money consistently for a year or so, you will have a significantly better chance of financial success after the baby arrives, which is just as important."

Tax credit for adoption

One of the most critical financial pieces of the puzzle is the federal adoption tax credit. Parents who adopt a child and pay out-of-pocket expenses relating to the adoption qualify for the credit; the amount you qualify for is directly related to the amount of adoption-related expenses you incur. Kim Westfahl, international adoption manager with Lutheran Social Services of Wisconsin and Upper Michigan, Milwaukee, encourages anyone interested in adoption to become familiar with this credit. Expenses that qualify for the credit include "reasonable and necessary" adoption fees such as court costs, attorney fees, and travel expenses—transportation, meals, and lodging while traveling to adopt a child. The amount of the credit changes each year, and is nonrefundable. A nonrefundable tax credit can reduce a person's tax owed to zero but not to less than zero: The government cannot end up owing the taxpayer money as a result of the credit. There are income limitations to the adoption tax credit—based on your modified adjusted gross income, which, like the tax credit amount, changes each year. For information about how to determine if you qualify and how much of a tax credit you may be eligible for, the IRS provides a work sheet (Form 8839).
Parent support groups are an excellent source for verification and information about a particular agency, adoption attorney, or social worker.
Jared Roskelley, a certified financial planner with Jackson Financial Advisors in Scottsdale, Ariz., and adoptive father of a toddler, can speak from professional and personal experience. He and his wife chose to adopt a child born in the U.S. and found that the tax credit they were eligible for essentially resulted in a "no-cost" adoption. "With recent tax law changes the credits changed as well, so that [previously] adoptive families were eligible for credit only in the year that the adoption was finalized," says Roskelley. "Now however, if domestic adoption expenses are incurred over the course of the process, which can be several years for some, families qualify for those credits each year."

Avoiding adoption scams

Another challenge to families hoping to adopt is the potential for financial scams. There are documented cases of vulnerable people losing money to individuals and organizations that take advantage of this typically emotional process. International adoption manager Westfahl says it's important to protect yourself from scams. "Families should always make sure they are working with an adoption agency which is licensed by the state they live in," she says. "They can also check if agencies are accredited by the Council on Accreditation, and they should ask for references from other families who have worked with the agency." The American Adoption Congress, which advocates for parents in the process of adopting, suggests working with an adoption professional or social worker to obtain proof of pregnancy. Parent support groups are another excellent source for verification and information about a particular agency, adoption attorney, or social worker. Financial planner Eaton couldn't agree more about the need for adoptive families to protect themselves. He says, "Unfortunately, unscrupulous people can prey on the hopes and dreams of others to make a quick buck." Roskelley says, "We were fortunate that we worked with a good agency—and that is very important. They're not all the same, and it can be hard to know if you have a good agency or not. Some are for profit, some are not, but all are dealing with a lot of highly emotional situations and it is hard to predict the outcome."
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