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 2016-2017 academic year, the average annual cost for a four-year public college is $20,090 (in-state students) and for a four-year private college, $45,370.
It’s likely that costs will continue to rise, but by how much? Annual increases in the range of 2 to 5% 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|
Key 2016 Education Savings Numbers
Coverdell education savings accounts (formerly known as education IRAs)
|Annual contribution limit||$2,000||$2,000|
|MAGI phaseout range for Coverdell education savings accounts||2016||2017|
|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
|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|
|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.