Prior to 2011, a 529 plan's yearly growth was 3% fixed simple interest, which only considered the principal. With the current compound annual growth rate (CAGR), the outcomes could, nevertheless, match the expansion of your investment strategy . This is because CAGR calculates the earnings for the following year by taking into account the principal and interest that has already accrued. For instance, with a $10,000 529 account balance and an investment in S&P, which had a 12% CAGR from 2011 to 2020, your account could have accrued $17,731 in tax-free earnings, as opposed to $3,048 over the same time period if it had used the 3% simple interest formula.