Free taxable vs tax-deferred calculator
Compare taxable versus tax-deferred investment growth — enter amount, return, tax rate, and years to see which account type builds more wealth, updated live, as you type.
On this page10 sections
Hypothetical projection. Excludes taxes, inflation, and fees. Actual investment returns vary.
Results are estimates. Consult a professional.
How the taxable vs tax-deferred investment calculator works
In a taxable brokerage account, investment gains are taxed each year as they occur, reducing the amount that compounds in subsequent years. In a tax-deferred account (Traditional IRA, 401(k), 403(b)), no tax is paid while the money grows — the full pre-tax balance compounds uninterrupted, and income tax is paid only on withdrawals. The longer the time horizon and the higher the tax rate, the larger the advantage of deferral.
The two formulas use different compounding paths. For taxable accounts, each year's net-of-tax return compounds forward. For tax-deferred accounts, the full gross return compounds for the entire period, with tax extracted only at the end. This seemingly small difference becomes enormous over decades due to the power of compound interest.
Worked example: $10,000 at 7% for 30 years — taxable vs tax-deferred
Morgan invests $10,000 at a 7% annual return for 30 years. In Scenario A the money is in a taxable brokerage account where annual gains are taxed at 25%. In Scenario B the same amount goes into a pre-tax Traditional IRA and taxes are deferred until withdrawal at the same 25% rate.
After-tax balance: taxable vs tax-deferred, $10,000 over 30 years
The table below compares the after-tax balance in taxable and tax-deferred accounts for a $10,000 investment held 30 years at three annual returns and two tax rates. The 'Deferral Advantage' column shows how many extra dollars the tax-deferred account produces.
| Annual Return | Tax Rate | Taxable FV | Tax-Deferred FV | Deferral Advantage |
|---|---|---|---|---|
| 5% | 22% | $29,508 | $33,711 | $4,203 |
| 5% | 32% | $25,771 | $29,389 | $3,618 |
| 7% | 22% | $43,419 | $59,376 | $15,957 |
| 7% | 32% | $36,432 | $51,764 | $15,332 |
| 9% | 22% | $56,985 | $93,077 | $36,092 |
| 9% | 32% | $46,198 | $81,114 | $34,916 |
Source: Taxable FV = PV × (1 + r(1−t))^n; Tax-deferred FV = PV × (1+r)^n × (1−t). PV = $10,000, n = 30 years. Higher returns and longer horizons magnify the deferral advantage.
Tips for maximising tax-deferred growth
Choosing between taxable and tax-deferred accounts involves more than the formula above. These principles help you position assets across both account types for the best after-tax outcome.
- Maximise employer matching before anything else — A 100% employer match on 401(k) contributions is an immediate 100% return before any investment growth. Capture the full match first, then optimise between Roth, traditional, and taxable accounts.
- Consider a Roth account if you expect higher taxes in retirement — The calculator uses the same tax rate for both accounts. If your tax rate will be higher at withdrawal than today, a Roth (pay tax now, withdraw tax-free) often outperforms a traditional tax-deferred account.
- Place high-yield, tax-inefficient assets in tax-deferred accounts — Bonds, REITs, and actively traded funds generate ordinary income taxed at higher rates. Put these in your IRA or 401(k) and keep tax-efficient assets (index funds, long-term equity holdings) in taxable accounts.
- Account for required minimum distributions (RMDs) — Traditional IRAs and 401(k)s require withdrawals starting at age 73, which may push you into a higher tax bracket in retirement. Large tax-deferred balances can create an unexpected tax burden; a Roth conversion ladder before RMD age can help.
- The deferral advantage shrinks with low returns and short horizons — Over 5 years or at a 3% return, the difference between taxable and tax-deferred is modest. Deferral delivers the most value for long-horizon, high-return, high-tax-rate situations.
Accuracy and limitations
This calculator uses a simplified model that assumes a constant annual return, a single tax rate applied every year, and full taxation of gains in the taxable account each year (equivalent to a fund with 100% annual turnover). In practice, buy-and-hold strategies in taxable accounts may defer realisation of capital gains for years, reducing the annual tax drag. Roth accounts are not modelled here. The calculator does not account for contribution limits, income phase-outs, early withdrawal penalties, RMDs, state income taxes, or changing tax rates over time. Actual results will vary based on your specific tax situation and investment behaviour.
Not financial advice — consult a financial professional for your specific situation.
Key terms: taxable and tax-deferred accounts
About this taxable vs tax-deferred investment calculator
This calculator runs entirely in your browser — nothing you enter is sent to any server.
Part of our finance calculators suite — explore all calculators.