Taxable vs. Tax-Deferred Investment Growth Calculator
A taxable vs. tax-deferred calculator shows the dollar difference between growing money in a regular brokerage account versus a tax-deferred account like a traditional 401(k) or IRA, for the same starting balance, contribution, and return. Enter your numbers above to see both final balances side by side.
For example, $10,000 plus $6,000 a year for 25 years at a 7% return, taxed at 24%, ends up meaningfully larger in the tax-deferred account than the taxable one — even though the tax-deferred account owes a bigger one-time tax bill at the end.
How it works
The taxable account model applies tax every year, but only to the share of that year's gain you'd actually realize — dividends and interest paid out, not appreciation you haven't sold. Enter the percentage of your gain that's realized each year: closer to 100% for a bond or high-dividend fund, closer to 0-20% for a low-turnover stock index fund. That realized share is taxed at your rate immediately; the rest keeps compounding untaxed until you eventually sell.
The tax-deferred account skips all of that. The full balance compounds every year with no annual tax bill, the same way a traditional 401(k) or IRA works. The tradeoff shows up at the end: the entire final balance, contributions and growth combined, is taxed once at your ordinary income tax rate when you withdraw it, the same way a 401(k) or traditional IRA withdrawal is taxed.
Both sides of this calculator use the SAME tax rate, on purpose. That isolates the one variable that actually matters here — timing. Tax-deferred growth usually wins specifically because untaxed money compounds faster than money that gets taxed away a little at a time, not because of a rate difference. In practice, long-term capital gains and qualified dividends often get a lower rate than ordinary income, which would narrow the gap in the taxable account's favor — this calculator doesn't model that separately, so treat the deferred account's advantage here as an upper-bound estimate.
Frequently asked questions
Is a tax-deferred account always better than a taxable account?
Not always, but it usually grows to a larger balance for the same return and tax rate, because untaxed money compounds faster than money that loses a slice to tax every year. A taxable account can still make sense for money you need before retirement age, since a 401(k) or traditional IRA charges an early-withdrawal penalty on top of ordinary income tax if you pull money out before 59½.
What does 'percent realized' mean in this calculator?
It's the share of a taxable account's annual gain that actually gets taxed that year, like dividends or interest paid out to you. The rest of the gain is unrealized appreciation — the investment is worth more, but you haven't sold it, so nothing is taxed yet. A high-dividend or bond fund realizes most of its gain every year; a low-turnover stock index fund realizes very little until you sell.
Why does the tax-deferred account still get taxed at the end?
Because a traditional 401(k) or IRA was never taxed going in or during the growth years, the IRS taxes the entire withdrawal as ordinary income. That's different from a Roth account, which is taxed up front so withdrawals in retirement are tax-free. This calculator models the traditional (pre-tax) version specifically.
Does this calculator account for the lower long-term capital gains rate?
No, it uses one tax rate for both accounts to isolate the effect of tax timing. In reality, long-term capital gains and qualified dividends are often taxed at a lower rate than ordinary income, which would shrink the taxable account's disadvantage shown here. Treat the tax-deferred account's edge in this calculator as a reasonable upper-bound estimate, not an exact prediction.
Should I max out a 401(k) before investing in a taxable brokerage account?
Most financial planners suggest capturing any employer 401(k) match first, since that's an immediate guaranteed return, then weighing a taxable account against further tax-advantaged contributions based on when you'll need the money. See our 401(k) vs. brokerage account comparison for the full tradeoff, including access before retirement age.
Sources
We prioritize primary sources for rules, formulas, rates, limits, and definitions. See our calculator methodology and editorial policy.