From Our Family to Yours: Planning for a New Arrival in California

As a new parent myself — my little girl is now 7 months old — I’ve been thinking a lot about the planning opportunities that come with welcoming a child in California. Between maternity and paternity leave, temporary reductions in household income, and the rising costs of childcare, there is a lot to manage financially – I highly recommend getting started before the sleep deprivation kicks in! This article will provide you with some insight on how to navigate this exciting time or support your children or grandchildren along their way.

1. California Maternity & Paternity Leave Benefits

In the United States there is no federally paid parental leave program, leaving benefits (if any) to be administered at the state level. California provides some of the most generous family leave benefits in the country as long as you have paid into State Disability Insurance through your employment. You apply through the MyEDD website (I recommend you create your account before your leave starts). Here’s how it works:

Applying for benefits is actually fairly easy and can be done completely online once your benefit window starts (generally 4 weeks before the due date). While these benefits are only partial replacements of income, taxes are not withheld and there is no deduction for retirement savings so the monthly amounts received may actually exceed current paycheck net amounts. This seems nice, but it is critical for new parents to understand that they may have a large tax bill the following year related to their PFL benefits which are considered taxable income.

In California, there is also PDL (Pregnancy Disability Leave) which may allow for up to 4 months of job-protected leave and may provide an avenue to request additional time working from home as a “reasonable accommodation”. Note that this leave is generally unpaid, but employers must continue health insurance benefits during PDL. This program is not often discussed, but with a little pressure on your HR department, you may find a way to extend your bonding time with your new baby or work from home.

2. Out-of-Pocket Birth Costs

Even with insurance, new parents should plan for additional expenses. Consider maximizing your HSA or FSA contributions to offset these costs tax-efficiently. If you are currently on a high-deductible plan (as many young people are), for those who are family planning, it may be beneficial to switch to a higher-premium, but lower deductible plan – otherwise you can expect to pay your full deductible amount plus some in the year of pregnancy/birth. Check your company’s benefits policy to see what benefits your company offers during pregnancy and postpartum.

Note that under the ACA, all health insurance plans are required to cover breast pumps and lactation support. In most cases you need a prescription or referral from your healthcare provider, but once you have that, you submit the prescription to the retailer you are purchasing the pump from and it will be covered – small additional cost may apply for an upgraded model.

3. Childcare Costs in California

California is one of the most expensive states for infant care.

Additional early expenses include diapers, formula, medical co-pays, and gear — all adding $150–$400/month depending on needs. For families with twins or multiples, these costs are even higher. Check to see if your employer offers a Dependent Care FSA, which is separate from a traditional FSA which is used for medical costs. A Dependent Care FSA lets you set aside up to $5,000 per household pre-tax to pay for eligible childcare or elder care expenses—such as daycare, preschool, and day camps—so you can work. You pay the provider, submit receipts, and get reimbursed up to the amount you’ve contributed so far. It’s a “use-it-or-lose-it” benefit and often provides greater tax savings than the Child & Dependent Care Tax Credit for higher-income households.

4. Planning Steps for New Parents

Here’s what we typically review with clients to prepare financially for the first year:

1. 1. Cash Flow Planning
      1. Estimate reduced income and increased baby-related expenses
      2. Include expected birth out-of-pocket costs (~$2,700–$3,000).
      3. Prepare for ~$9,000–$10,000 in first-year costs beyond usual expenses to make the first year much less stressful.
   2. Tax-Advantaged Savings
      1. Dependent Care FSA
      2. 529 plan contributions (education savings only) – anyone can contribute to a child’s 529 plan with very high lifetime contribution limits. Open an account as soon as the baby is born to begin saving for education expenses and take advantage of compounding growth over time.
      3. Keep an eye out for further guidance on Trump Accounts which will be another beneficial saving tool for minors expected to begin in July 2026.
      4. Adjust withholding for changing household income.
   3. Estate Planning Updates
      1. Guardianship selections – in CA a full trust is not needed, you can fill out a California Nomination of Guardian form until you complete your full estate plan.
      2. Wills and trusts – this would include a designation for guardianship.
      3. Beneficiary designations – adding children as primary or contingent beneficiaries is a common practice for investment and retirement accounts.
   4. Insurance Coverage Review
      1. Life insurance – ensuring coverage accounts for child care, mortgage, and college expenses, etc.
      2. Disability coverage
      3. Health insurance gaps. Babies are covered for their first month of life under the mother’s insurance coverage, but then must be added to a family plan to continue coverage.
   5. Career & Income Planning
      1. Return-to-work timeline
      2. Retirement savings adjustments
      3. Long-term earning trajectory

5. Final Thoughts

California’s leave benefits provide meaningful support, but out-of-pocket costs for childbirth and childcare are significant. With proactive planning, budgeting, and use of tax-advantaged accounts, families can focus on enjoying their new addition rather than stressing about finances.

Remember, planning ahead financially is one of the best gifts you can give your family in this exciting first year. Please give our office a call if you have any questions about planning and saving for your newest family member’s future.