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How We Live Now

Juggling Day-Care and College Costs

Finding savings when current demands clash with long-term goals

IT'S A CATCH-22 FOR MANY COUPLES in Generation X: In order to afford the high cost of raising children, both spouses have to work longer and harder. But if they put in all those hours, they'll have to hire someone to take care of the kids, pushing their expenses even higher. With day-care costs now rivaling college tuition in many states, Richard J. Polimeni, director of Bank of America Merrill Lynch's Education Savings Programs, offers these suggestions for stretching your dollars.

If your employer offers a dependent-care flexible savings arrangement (FSA), take advantage of it. Currently, you can legally contribute as much as $5,000 per year ($2,500 for married couples filing separately) to an FSA. Your contribution will not count as taxable income. The money in the FSA can be used for eligible expenses, which may include day care, nannies or babysitters. Because that money is not considered taxable income, a family could reduce its tax bill by thousands of dollars depending on its tax bracket, Polimeni says. "And contributions come out of your paycheck automatically, so you probably won't miss the money after the first couple of paychecks."

You may be eligible for the child- and dependent-care credit on your federal income tax return to offset qualified child- and dependent-care expenses. You can generally claim a maximum of $3,000 in expenses paid in a year for the care of one qualified individual (up to $6,000 for two or more), so that you can work or look for work. However, the amount you claim must be reduced by the amount your employer provides for any dependent care you deduct or exclude from your income. In other words, if your employer offers an FSA, you may be fully or partially ineligible for this tax credit. The amount of the credit depends upon your qualifying expenses. Many families will qualify for a credit equal to 20% of those qualifying expenses, or a maximum of $1,200. However, families with lower amounts of adjusted gross income may receive a credit equal to as much as 35% of their qualifying expenses. Because this is a tax credit, not a deduction, it reduces the amount of tax you owe by the amount of the credit.

Because saving for your kids' future education expenses can feel like a stretch when you're already paying for day care, Polimeni suggests calculating what you save on taxes by using the day-care FSA or the childcare tax credit and putting that amount into a 529 college savings plan.

Caring for Your Parents—From a Distance

Three ways to bridge the miles as you help aging parents

IN AN AGE OF GEOGRAPHIC MOBILITY and crunched schedules, Gen Xers may find it difficult to provide personal attention to an aging parent, says Cynthia Hutchins, director of Financial Gerontology at Bank of America Merrill Lynch. "Or if one sibling lives nearby, it may all fall on that person." Here are some options that can help ease eldercare worries:

Seek professional assistance.
A growing field of specialists known as geriatric-care managers, or aging-life-care professionals, can help stretched families handle the burdens of eldercare, Hutchins says. More than just companions, these professionals can help pay bills, manage medical appointments and monitor a parent's safety and security. Look for a licensed professional with strong references who is accredited by an organization such as the Aging Life Care Association ( Fees should be stated up front and tailored to your parent's specific needs.

Put a sibling on salary.
Some families compensate a family member who lives locally and provides the bulk of the care for an aging parent. Such arrangements may backfire if the terms aren't agreed to in advance, according to the Family Caregiver Alliance ( Create a written "personal care agreement" outlining the specific duties to be performed, the dates and number of hours, and the fee (in line with similar services in your area), the organization suggests.

Stay connected online.
Technology is helping scattered families stay closer, says Stacy Allred, managing director, Merrill Lynch Wealth Management Center for Family Wealth Dynamics and Governance™. This is especially true when a health issue is involved. On the nonprofit website CaringBridge (, families can set up a private place online to share information among themselves and caregivers. Gen Xers, Allred says, "are inviting their parents to sign up, so they can track their progress from afar."

Setting Money Boundaries

A written statement can clarify what you can (and can't) do to help your parents and your kids

MANY FAMILIES THESE DAYS draft "mission statements" that help define the values they live by. Families can also benefit from drafting a more tightly focused "values statement," clarifying their thinking about the kind of financial support they can give their loved ones.

"If they're not careful, Gen Xers in the middle of the sandwich can be overly generous, putting their own futures at risk," says Stacy Allred, managing director, Merrill Lynch Wealth Management Center for Family Wealth Dynamics and Governance™. "Agreeing on goals ahead of time can provide a framework for subsequent discussions about such touchy matters as family loans and wills. This can be immensely helpful in managing expectations and helping people plan ahead."

To start, work with your financial advisor to determine what you need for current expenses and for retirement savings. Then put down on paper what you're able to give to support your kids and parents. Be as detailed as possible, Allred advises. Your family values statement should include:

  • Why you want to help. What are your main goals? To help make your parents' lives comfortable? To educate your kids while also encouraging self-reliance? Setting clear boundaries can keep demands from becoming open-ended.
  • How you will help. What types of assistance—time, money, emotional support—are you prepared to provide?
  • What you will do. Be as specific as possible. Will you support your kids through their undergraduate years or beyond? Will you help them with the down payment on their first home? How much can you do to see that your parents have the housing and care they need?

Once the values statement is complete, share it with your family. "Make clear to them that the values statement is intended to help you make the most of the resources you have, for everyone's benefit," says Allred.

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