Emily invested $60,000 into a 529 account on January 1, 20X8 to fund her son's future schooling. Five years later, Emily needs this money to purchase a new car for the family. Her after-tax and penalty proceeds were $76,896. What is Emily's after-tax and penalty rate of return?

Question

Quizplus · Accepted Answer

The after-tax and penalty rate of return can be calculated using the formula for compound annual growth rate (CAGR): CAGR = (Ending Value/Beginning Value)^(1/n) - 1. Here, Ending Value = $76,896, Beginning Value = $60,000, and n = 5 years. CAGR = ($76,896/$60,000)^(1/5) - 1 = 5.1%.

Emily Invested $60,000 into a 529 Account on January 1