When saving for college, starting early is key. Azzad advisers will help you plan for one of life's biggest investments.

Investing for Education

As someone who values financial freedom for yourself and your family and seeks a better life for all, you understand the importance of a college education for your children. And you know that, next to buying a home, a college education is the largest expenditure most parents will ever make. According to the College Board, for the 2015-2016 school year, the average annual cost for a four-year public college is $24,061 (in-state students) and for a four-year private college, $47,831.

It’s likely that costs will continue to rise, but by how much? Annual increases in the range of 4 to 7% would be in keeping with historical trends. But keep in mind that the actual percentage increase in any year could be higher or lower, and the rate could vary from public to private college.

It’s likely those numbers will only continue to rise.

The Importance of Saving Early

The more money you save now, the less money your child will need to borrow later. By investing even a small amount on a regular basis, you have the potential to accumulate a significant amount in your child’s college fund.

The following table illustrates how your monthly investment could grow over time (assuming an 8 percent after-tax):

Monthly Investment 5 Years 10 Years 15 Years 20 Years
$100 $7,348 $18,295 $34,604 $58,902
$300 $13,043 $54,884 $103,811 $176,706
$500 $36,738 $91,473 $173,019 $294,510
Note: This example is for illustrative purposes only and does not represent the return of any investment. There is no guarantee that your investment will realize a return, and there is a risk that you could lose your investment entirely.

Key 2016 Education Savings Numbers

Coverdell education savings accounts (formerly known as education IRAs)

Coverdell ESAs 2015 2016
Annual contribution limit $2,000 $2,000
MAGI phaseout range for Coverdell education savings accounts 2015 2016
Single–phaseout threshold amount $95,000 $95,000
Single–completed phaseout amount after $110,000 $110,000
Married filing jointly–phaseout threshold amount $190,000 $190,000
Married filing jointly–completed phaseout threshold amount $220,000 $220,000

Gift tax exclusion

Gift tax 2015 2016
Annual gift tax exclusion–single individual $14,000 $14,000
Annual gift tax exclusion–joint gift $28,000 $28,000
Lump-sum gift to 529 plan–single individual $70,000 $70,000
Lump-sum gift to 529 plan–joint gift $140,000 $140,000

Kiddie tax

Kiddie tax 2015 2016
Generally, children pay federal income tax at their parents’ rate on any investment income over $2,100 $2,100

Note: Azzad Asset Management does not provide tax or legal advice.