See how the same investment grows differently in a taxable brokerage account, a tax-deferred account (Traditional IRA/401k), and a tax-free account (Roth IRA/401k). Understand the impact of taxes on long-term investment growth.
Account type matters enormously for long-term investment outcomes. The same $10,000/year invested over 30 years produces dramatically different ending balances depending on whether it grew in a taxable brokerage account (taxed every year on dividends and at sale on gains), a tax-deferred account (Traditional 401k/IRA — no annual tax, ordinary income tax on withdrawal), or a tax-free account (Roth IRA/401k — no annual tax, no withdrawal tax). The differences come from "tax drag" — the slow erosion of returns from annual taxation in taxable accounts.
In a typical scenario (24% federal + 5% state combined marginal rate, 15% LTCG rate, 8% return with 2% dividend yield over 30 years), the after-tax outcomes differ substantially. Tax-free (Roth) typically produces the most after-tax wealth. Tax-deferred (Traditional) is usually close behind if retirement tax rate is similar to current rate. Taxable brokerage produces meaningfully less because of annual tax drag, even with the same gross investment performance.
This calculator compares all three account types for the same investment scenario, computing tax drag, total taxes paid, and ending after-tax wealth. Use it to understand why maxing tax-advantaged accounts before taxable investing matters, plan the optimal account-type mix for retirement contributions, and quantify the long-term cost of holding investments in less-tax-efficient locations.
$10K/year × 30 years. 8% return, 2% dividends. 32% federal + 7% state current. 22% retirement. 15% LTCG. Taxable: tax drag ~0.7%/year. Final $1.00M. Capital gains tax: $80K. After-tax: $920K. Traditional: $1.13M before tax. Tax at 22%: $249K. After-tax: $881K. Plus current tax savings ($3,900/year × 30 = $117K) if invested = additional $230K future value. Total: $1,111K. Roth: $1.13M after-tax (no further tax). For high earners moving to lower retirement brackets, Traditional + investing tax savings can match or beat Roth. Without investing tax savings, Roth wins clearly.
Texas resident. 22% federal + 0% state = 22% combined. $6K/year IRA contribution, 25 years, 8% return. Taxable: smaller tax drag (0.4%/year). Final $385K. Capital gains $30K. After-tax: $355K. Traditional: $440K. Tax 18%: $79K. After-tax: $361K. Roth: $440K (no tax). Roth clearly wins. The lower-tax environment narrows the differences but Roth still produces best after-tax outcome.
Age 55, $20K/year × 10 years. Currently 32% federal + 7% state. Expecting 12% federal + 0% state in retirement (relocating to no-tax state with smaller spending). Tax savings from Traditional: $20K × 39% = $7,800/year × 10 = $78K of immediate tax savings. Traditional + investing tax savings: Traditional balance year 10: $313K. Tax at 12% retirement: $37,560. After-tax: $275K. Plus tax savings invested at 8% × 10 years: ~$117K Total: $392K Roth: $313K (no tax). Traditional wins substantially when retirement bracket is dramatically lower than current. The deduction now is worth much more than the tax-free withdrawal later.
Use this calculator when planning retirement contribution strategies, evaluating whether to add taxable brokerage savings on top of maxed tax-advantaged accounts, deciding between Traditional and Roth contributions, or understanding the long-term cost of tax drag in taxable accounts.
Pair with: Roth-vs-Traditional, Roth-vs-Traditional-401(k), IRA, 401(k), and compound-interest calculators.
Key practical insights:
1. **Always max tax-advantaged accounts first.** The tax efficiency advantage is substantial. Priority: employer 401(k) match → Roth IRA (or Traditional if high bracket) → 401(k) to full limit → HSA if eligible → taxable brokerage.
2. **Asset location matters.** Hold tax-inefficient assets (REITs, bonds, dividend-heavy stocks) in tax-advantaged accounts. Hold tax-efficient assets (broad market index funds with low dividend yields) in taxable accounts where you can.
3. **Tax drag is real but variable.** Tax drag is roughly 0.3-1.0% of annual return depending on dividend yield, turnover, and tax bracket. Low-cost broad market index funds have lower drag than actively managed funds.
4. **Roth doesn't always win.** Despite the "tax-free is best" intuition, Traditional wins when current marginal rate is meaningfully higher than expected retirement rate (and the tax savings get invested). For most middle-income earners, retirement rate is lower than current rate, slightly favoring Traditional. For young/low-bracket workers, Roth typically wins.
5. **Tax-free withdrawal flexibility is valuable.** Roth provides flexibility in retirement — withdrawals don't affect Medicare premiums, Social Security taxation, or other income-based programs. This optionality is hard to quantify but real.
Compare Roth and Traditional IRA/401(k) to see which is better for you.
See how your money grows over time with compound interest and regular contributions.
Calculate your potential investment returns over different time horizons.
Calculate return on investment including annualized returns and net gain.
Compare dollar-cost averaging vs lump sum investing to see which strategy wins.
Calculate simple interest on a principal amount over time.
Portion of return from dividends (taxed annually in taxable accounts)
Taxable (After Tax)
$686,144
Tax-Deferred (After Tax)
$893,125
Tax-Free (Roth)
$868,656
Total Contributed
$300,000
| Year | Taxable | Tax-Deferred | Tax-Free |
|---|---|---|---|
| 1 | $7,639.60 | $10,800.00 | $7,668.00 |
| 2 | $15,859.81 | $22,464.00 | $15,949.44 |
| 3 | $24,704.76 | $35,061.12 | $24,893.40 |
| 4 | $34,221.92 | $48,666.01 | $34,552.87 |
| 5 | $44,462.38 | $63,359.29 | $44,985.10 |
| 6 | $55,481.12 | $79,228.03 | $56,251.90 |
| 7 | $67,337.29 | $96,366.28 | $68,420.06 |
| 8 | $80,094.52 | $114,875.58 | $81,561.66 |
| 9 | $93,821.31 | $134,865.62 | $95,754.59 |
| 10 | $108,591.33 | $156,454.87 | $111,082.96 |
| 11 | $124,483.87 | $179,771.26 | $127,637.60 |
| 12 | $141,584.24 | $204,952.97 | $145,516.61 |