Understanding the Finances of Adoption
As both an adoptee and an adoptive parent, I often hear people say, "I would love to adopt, but I could never afford it." Recently, a fellow financial planner reached out to ask if I could speak with one of her clients about the financial aspects of adoption. It made me realize just how much misinformation exists about the costs of adoption. I hope this article helps clear up some of those misconceptions and provides practical information for anyone considering adoption.
We’ll cover the different types of adoption, the associated costs, tax credits, and adoption assistance programs that may be available to you depending on your state.
Types of Adoption
1. Public Adoption (Foster-to-Adopt)
Our son, Theodore, was adopted through the Los Angeles County Department of Child and Family Services, meaning we were foster parents first before his adoption became official. Foster-to-adopt is when prospective parents foster a child in the hope of adopting them, though adoption can only occur after the birth parents' rights are terminated. Each state has specific requirements for foster parents, so it's essential to review your local regulations.
2. Domestic Private Adoption
This involves U.S.-born infants being placed for adoption, often chosen by the birth parents themselves. Open adoptions, where birth parents maintain some form of contact or involvement in the child’s life, are becoming more common. This can create a more collaborative experience for everyone involved.
3. International Adoption
International adoption allows individuals or couples to adopt a child from a different country. My parents adopted me from South Korea in the late 1970s. It’s shocking to look back and realize how costly it was, even then—my father’s annual income was $50,000, and the adoption cost $25,000. Today, the process remains complex, and costs can vary significantly depending on the country of origin and other factors.
Adoption Costs
Foster-to-Adopt
Foster-to-adopt is one of the most affordable options. In many states, the cost is as low as $0, as the state often covers home studies, legal fees, and provides a monthly stipend for the child’s care during the foster period.
Domestic Private Adoption
Private domestic adoption costs between $20,000 and $50,000. These fees generally cover birth mother medical expenses, legal representation, court fees, and social worker services. While the range may seem steep, there are ways to reduce the financial burden, such as grants or employer-sponsored adoption benefits.
International Adoption
The average cost for international adoption ranges from $30,000 to $50,000. Costs vary depending on the country and agency fees, as well as the complexity of international legal proceedings.
Ways to Offset Adoption Costs
Yes, adoption can be expensive, but there are several ways to offset these costs. Here are three major options:
Tax Credits The IRS provides an adoption tax credit to help reduce your financial burden. In 2024, the maximum adoption tax credit is $15,950 per child, a slight increase from previous years. This credit helps reduce the taxes you owe, and if your adoption expenses exceed your tax liability, you can carry forward the credit for up to five years. Be mindful of income limits, which may affect eligibility.
State, County, and City Assistance Programs Many states and local governments offer financial assistance for adoptive families. For instance, while Theodore was in foster care, LA County covered his daycare expenses—an enormous relief, given the high cost of childcare in the area. Check with your state or city to see what programs are available.
Employer-Sponsored Adoption Benefits Several companies offer adoption assistance as part of their employee benefits. Some organizations provide up to $25,000 in reimbursements for adoption expenses, so it's worth checking with your HR department to see what might be available to you.
Adoption Tax Credits for 2024
Here’s what you need to know about the federal adoption tax credit:
The maximum credit for 2024 is $15,950 per child.
There are income limits, so higher earners may see a reduced credit.
The credit is non-refundable, meaning it can only offset your tax liability, but you can carry forward unused amounts for up to five years.
Eligible children must be under 18, unless they cannot care for themselves due to physical or mental disabilities.
For more detailed information, visit the IRS website or check out these helpful guides:
State Adoption Assistance Programs
Each state offers different forms of assistance to foster and adoptive families. You can find more information and links to your state's program at:
Companies Offering Adoption Assistance
If you're employed by a larger organization, it’s worth checking if they offer adoption assistance. Many companies have generous benefits that can significantly reduce your out-of-pocket expenses. Check out these resources to learn more:
Final Thoughts
Adoption has truly been a gift to my family, and I want to encourage others to keep an open heart about the possibilities. With the right resources and support, growing your family through adoption can be more affordable than many realize. I hope this article helps clarify the financial realities of adoption and empowers more families to explore this beautiful path.
-Laurie Allen
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