Tax-deferred growth compounds untaxed, then is taxed at the end. See the net difference.
This calculator compares a taxable account with a tax-deferred one, letting growth compound untaxed and then taxing the gain once at withdrawal, to show the net after-tax difference.
Tax-deferred accounts, like traditional IRAs, 401(k)s, and annuities, let your money compound at the full return with no annual tax drag, then tax the gain once when you withdraw. A taxable account is taxed each year on interest, dividends, and realized gains, which lowers the return that compounds. Over long periods, deferral usually wins even after the final tax.
The advantage depends on your tax rate now versus at withdrawal, and on how the taxable account is managed, a buy-and-hold taxable account defers much of its own tax until sale, narrowing the gap. This calculator shows a conservative comparison; the real answer usually lands between the two figures. It's illustrative, not tax advice.
Usually over long periods, because growth compounds untaxed and is taxed only once at withdrawal, versus a yearly tax drag in a taxable account.
If your tax rate at withdrawal would be much higher than now, or you need flexible access, a taxable account's lower long-term capital gains rates can compete.
It uses a single rate for simplicity. Real taxable accounts benefit from lower long-term capital gains rates and deferral until sale, narrowing the gap.
See the exact formula and a worked example on our methodology page.