Tax-Deferred Growth Calculator

Frequently Asked Questions

How much does tax deferral really add?

Over 30 years, growing $10,000 at 8% in a tax-deferred account vs. a taxable account taxed annually at 25% can produce 30-50% more ending wealth. The benefit is larger for higher tax brackets and longer horizons.

What are 2025 contribution limits?

401(k): $23,500 employee ($31,000 with age 50+ catch-up). IRA: $7,000 ($8,000 with catch-up). Backdoor Roth and mega-backdoor Roth strategies can add tens of thousands more for high earners.

When is a Roth better than traditional?

When your future tax rate will be higher than today's, typically true for young earners, those expecting RMD-driven bracket creep, and those who want tax-free inheritance for heirs. Both should be balanced rather than picked exclusively.

What about taxable brokerage accounts?

They lack tax deferral but offer flexibility, no contribution limits, lower long-term cap gains rates, tax-loss harvesting, and step-up in basis at death. Most investors should use tax-advantaged first, taxable second.

Provided by AllCalculators.io
Free online calculators for everyday. No registration required.

Estimates only. Not investment advice.

Investment Disclaimer: Estimates only. Not investment advice.

This calculator provides estimates for educational purposes only and is not investment advice. Past performance does not guarantee future results. Consult with a qualified financial advisor before making investment decisions. All investments carry risk, including potential loss of principal.

JavaScript is required to use the interactive calculator above. The questions and answers below remain readable without JavaScript.

How This Calculator Works

You enter a starting balance, monthly contribution, expected annual return, years to retirement, your retirement tax rate, and the annual tax drag you expect in a taxable account. The tool compounds two parallel accounts month by month. The traditional path (a pre-tax 401(k) or IRA) grows at the full return untouched, then has your retirement tax rate applied to the entire balance at withdrawal. The taxable path grows at a reduced rate - the return minus the drag - reflecting taxes paid each year on dividends and distributions, and at the end pays a 15% long-term capital-gains tax on its gains. It then shows the after-tax balance of each and the dollar and percentage advantage of deferral.

Formulas Used

Each account compounds monthly: balance = balance × (1 + monthly rate) + contribution, repeated for years × 12 months. The traditional monthly rate is annual return ÷ 12; its after-tax value = ending balance × (1 − retirement tax rate). The taxable account uses a net annual return of return × (1 − drag rate), divided by 12; at the end it taxes only the gains (balance minus total contributions) at 15%. The advantage = traditional after-tax − taxable after-tax.

Worked Example

Start with $20,000, add $500 a month, earn 7% for 30 years, with a 22% retirement rate and 15% tax drag. The traditional account compounds at the full 7% to roughly $730,000 pre-tax; after a 22% withdrawal tax that is about $569,000. The taxable account compounds at only 7% × 0.85 = 5.95%, reaching far less before its capital-gains tax. The deferral advantage runs into the six figures - driven less by the rate difference at withdrawal than by three decades of avoided annual tax drag.

Common Mistakes

Setting the tax drag to zero - even a tax-efficient index fund loses something each year to taxable dividends, and active funds far more.

Assuming a much lower retirement tax rate than is realistic; required minimum distributions and Social Security can keep rates high.

Ignoring that traditional withdrawals are taxed as ordinary income, not at capital-gains rates.

Treating the result as a Roth comparison - this models pre-tax traditional versus a taxable brokerage, not after-tax Roth contributions.

Tips & FAQ

Tax drag is the silent compounding cost: a fund yielding 2% in dividends taxed at 24% loses about 0.48% a year, while high-turnover active funds can shed 1.5–2.5%. 2026 contribution limits are $24,500 for a 401(k) ($32,500 at age 50+), $7,000 for a traditional IRA ($8,000 at 50+), and $4,300/$8,550 for an HSA, which carries a triple tax advantage. Taxable accounts still win in specific cases: when you expect a much higher rate in retirement, need access before age 59½, want the step-up in basis at death, or value tax-loss-harvesting flexibility. Educational only, not investment advice.

Tax-Deferred Growth Calculator

Frequently Asked Questions

Related Investment Calculators