Taxable vs. Tax Deferred vs. Tax Free Investment
This calculator is designed to help compare a normal taxable investment, a tax deferred investment and tax-free investment.
How the taxable vs. tax deferred vs. tax free investment calculator works
It grows the same contributions three ways: a taxable account whose gains are taxed each year, a tax-deferred account taxed once at withdrawal, and a tax-free Roth, then compares the after-tax ending values.
Worked example: with annual contribution of $7,000, annual return of 7.00% and years invested of 30, the taxable vs tax-deferred vs tax-free investment shows best after-tax outcome of Tax-free (Roth).
- Taxable account
- $517,601
- Tax-deferred (after tax)
- $598,059
- Tax-free (Roth)
- $707,511
- Roth vs taxable
- $189,911
The formula
Taxable grows at return × (1 − tax). Tax-deferred grows at the full return, then the gain is taxed at the retirement rate. Tax-free grows at the full return, untaxed.
Results are estimates for educational purposes and are not financial advice. Confirm exact figures with your lender, plan administrator or advisor.
Questions about the taxable vs. tax deferred vs. tax free investment
Which account type builds the most wealth?
Usually the tax-free Roth, because nothing is ever taxed, with tax-deferred close behind. The taxable account trails because its gains are taxed every year, reducing what compounds.
When is tax-deferred better than Roth?
When you expect a lower tax rate in retirement than today, since you defer tax from a high-rate year to a low-rate one. Roth wins if your rate stays the same or rises.
Why is a taxable account worth using at all?
It has no contribution limits or withdrawal restrictions, offers flexibility, and benefits from lower long-term capital-gains rates — useful once tax-advantaged accounts are maxed.
Is the Taxable vs. Tax Deferred vs. Tax Free Investment free to use?
Yes. Every calculator on FinCalculators is completely free, with no sign-up, login or paywall. You can run as many scenarios as you like.