Taxable vs Tax-Deferred Investment Calculator
Compare a taxable investment account, where distributions and gains are taxed along the way, with a tax-deferred account that is taxed only when you withdraw.
How Much Does Tax Deferral Add?
Enter a starting balance, yearly additions, returns, distribution yield, fees and tax rates. The calculator compares the after-tax outcome of each approach. This is not tax advice.
Taxable vs Tax-Deferred Estimator
Deferral lets growth compound without yearly tax drag, but withdrawals are taxed at ordinary rates.
Understanding Tax Deferral
Key concepts for investing
Tax Drag
In a taxable account, yearly distributions are taxed, leaving less money to compound.
Deferral
In a deferred account, growth compounds untaxed until you withdraw.
Withdrawal Tax
Deferred gains are usually taxed at ordinary rates, which can exceed capital gains rates.
Break-Even
A longer horizon, higher yield and lower fees favour deferral; high withdrawal rates and fees favour taxable.
Taxable vs Deferred Features
General features of the two approaches.
| Feature | Taxable | Tax-Deferred | Notes |
|---|---|---|---|
| Yearly tax on growth | Yes (distributions) | No | Compounding advantage |
| Tax at withdrawal | Capital gains only | Ordinary income on gains | Rates may differ |
| Access | Flexible | Restrictions may apply | Penalties possible |
| Fees | Usually lower | Can be higher | Check wrapper costs |
| Best suited to | Tax-efficient index funds | Income or active strategies | Location matters |
| General Pattern | Long horizon favours deferral | Compare fees and rates | Seek tax advice |
Taxable vs Tax-Deferred Calculator FAQ
Answers to common questions about this calculator.
Not always. Higher fees, a higher tax rate at withdrawal or limited access can make a taxable account competitive.
The reduction in return caused by paying tax on distributions and gains each year.
Many tax-deferred accounts are taxed as ordinary income at withdrawal. Change the rate to match your situation.
No. It is a simplified comparison and ignores many rules and limits.